The Canadian dollar is rallying strongly in the Thursday session. Currently, USD/CAD is trading at 1.2676, down 0.76% on the day. We could see further movement from the pair in the North American session, as Canada releases Retail Sales reports for July.
Dovish FOMC raises risk appetite
The highly-anticipated FOMC meeting delivered the goods, sort of. The markets had anxiously been looking for the Fed to provide some clarity on tapering, and there was even hope that policymakers might provide a timeline for scaling back bond purchases. After the meeting, Fed Chair Jerome Powell said that the Fed could taper in November if he was satisfied with the economy’s performance. As well, the dot plot showed that two more members projected a rate hike in 2022.
The markets’ reaction is that the Fed is in no hurry to raise interest rates, as they still believe that inflation will be transitory in 2022. The Fed may be committed to tapering in the next few months, but a rate hike is further down the road. This has sent risk appetite higher, lifting minor currencies like the Canadian dollar.
In his remarks, Powell mentioned the two key areas that the Fed is monitoring ahead of a taper – inflation is running well above the Fed target of 2%, while unemployment, which has dropped to 5.2%, still has some ways to go before reaching the Fed goal. The markets will be closely scrutinizing upcoming inflation and employment numbers, which will be major factors in the Fed’s decision as to when to press the taper trigger.
- On the upside, there is resistance at 1.2829. This is followed by resistance at 1.2885
- Support at 1.2659 is fluid. Below, there is support at 1.2545
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