The Canadian dollar has posted considerable losses on Wednesday. Currently, USD/CAD is trading at 1.2634, up 0.55% on the day.
On the fundamental front, the Ivey PMI sparkled in March, rising from 60.0 to 72.9 and blowing past the forecast of 62.0. The reading points to an improvement in economic growth.
What can we expect from the Canadian dollar in 2021?
The sentiment towards the loonie has been strong so far this year, and things could get even better. The Canadian dollar is up more than 1% against the US dollar in 2021, and has racked up even stronger gains against the Swiss franc and the yen. Canada’s vaccine rollout has been sluggish, with only 14% of the population having received at least one Covid shot, versus 34% in the US. There are lockdowns and curfews in effect across the country, in an effort to curb soaring infection rates.
Despite these Covid woes, the Canadian dollar remains attractive to investors. The impressive recovery in the US has helped rejuvenate Canada’s export sector, with some 80% of exports going to the US. As well, the improvement in the global economy has raised the risk appetite for minor currencies like the Canadian dollar.
Another key factor in the Canadian dollar’s favor is the Bank of Canada’s announcement that it plans to taper its purchase of government bonds. The QE programme has been a key tool in keeping interest rates low during the Covid pandemic, and the move to reduce bond purchases would make Canada the first of the G-7 members to take such a step, which could occur as early as the next policy meeting on April 21st. In contrast, the Federal Reserve is not expected to taper QE before 2022.
Will FOMC minutes remain dovish?
Recent US job numbers are pointing to a rapidly improving labour market. Nonfarm payrolls breezed past the estimate of 652 thousand, with a gain of 915 thousand. This was followed on Tuesday by JOLTS job openings, which improved from 6.92 million to 7.37 million, well above the forecast of 6.91 million. This points to the labor market creating jobs at a much faster pace than expected.
The Fed has insisted that it will not raise rates until the labor market recovered, telling the markets not to expect any hikes prior to 2024. With that recovery looking like it could be ahead of schedule, will the Fed change its timeline for rate hikes? Investors will be looking for such clues in the FOMC minutes later today (18:00 GMT).
- The pair is putting strong pressure on 1.2640 and could test this line during the day. This is followed by resistance at 1.2703
- On the downside, there is pressure on support at 1.2521. Below, there is a support level is at 1.2465
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