USD/CAD Lower after FOMC but Recovering on Strong US Data

The USD was rocked by the FOMC statement that had a dovish undertone regarding the timing of impending higher interest rates. The Federal Reserve is sticking to the plan to raise the benchmark interest rate before the end of the year, yet the pace and forecasts of where policy members see the rate in the future has been downgraded. September continues to be the key FOMC meeting where the much awaited first rate hike will be announced, that is if the U.S. economy complies.

Wednesday’s price action was carried over into Thursday’s trading with a mixed data release from U.S. data. Inflation came in under expectation at 0.4 percent after a 0.5 percent growth was expected. Unemployment claims continue to impress with a decline of 12,000 new claims from the previous week.

Major pairs advanced versus the USD before mid day in the North American session. The USD/CAD reached 1.2128 before the pair started to retrace and confirmed the end of the trend as the Philadelphia Fed Manufacturing Index surprised with a 15.2 reading crushing the expected 8.1. The recovery in the Philadelphia region increased from a reading of 6.7 in May boosting the USD with positive news on the manufacturing front that has been affected by a strong USD.

The USD/CAD has seen an increased volatility in the pair as the two biggest events this week did little to remove uncertainty and rather further increased the level of uneasiness in the markets. The Eurogroup has announced a new emergency meeting on Monday to discuss Greece’s situation. Greek PM Alexis Tsipras will be in Russia today and tomorrow, so it might not be until Friday that we hear if he was able to secure funding after meeting Russian President Vladimir Putin. The FOMC turned out be more dovish than expected, although the data had been pointing out that rate hikes would be coming later rather than sooner. So far the biggest indicator of a rate hike this year seems to be the combination between the strong employment component and the Federal Reserve’s commitment.

With no Canadian data on the schedule, the loonie has navigated those macro trends. Tomorrow Canadian inflation and retail sales data will help clear any doubts about the Canadian currency that touched a daily high of 1.2337 before the FOMC and broke through several resistance levels to touch the daily low of 1.2128. The CAD has lost some of the momentum and after profit taking is now trading around 1.2230.

Canadian dollar events to watch this week:

Friday, June 19
8:30am CAD Core CPI m/m
8:30am CAD Core Retail Sales m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza