“The Canadian Dollar’s recent slide to a twelve-month low reflects a shifting market sentiment as investors turn to the Greenback in anticipation of the Federal Reserve’s upcoming decisions, highlighting the global impact of central bank policies on currency valuations.”
The Canadian Dollar (CAD) has experienced a setback, falling to a new twelve-and-a-half-month low against the US Dollar (USD). This decline comes after a brief rally on Monday. Additionally, Canada’s Gross Domestic Product (GDP) for August remained flat, missing expectations and indicating a slowdown in economic growth.
Investors are turning towards the USD as they anticipate the Federal Reserve (Fed) rate call on Wednesday. While no rate changes are expected this week, there is a growing likelihood of a rate hike in December. This shift in sentiment has led to a broader risk-off sentiment in the markets.
The failure of CAD to sustain its rebound is attributed to the weakening market risk appetite. On the other hand, the USD is the top performer for Tuesday, with the Dollar Index (DXY) climbing nearly a full percent.
The Canadian economy is displaying deeper cracks, with the manufacturing sector experiencing its fifth consecutive month of decline. Dry conditions in Western Canada have also contributed to losses in agriculture. As a result, the odds of a rate cut in Q2 next year are increasing.
Investors are closely watching the Fed’s rate call on Wednesday, and there is speculation of one more 25-basis-point rate hike in December. Additionally, Bank of Canada (BoC) Governor Tiff Macklem will be testifying before the Canadian government’s banking and finance oversight committee.
From a technical analysis perspective, the USD/CAD pair is heading towards 1.3900 as the USD gains strength. The pair bounced off the 50-day Simple Moving Average (SMA) and is currently at 1.3850, with the 200-day SMA acting as a price floor at 1.3770. The only notable resistance level is at 1.3977, which was the annual high in October of last year.
Overall, the CAD is struggling to withstand the strength of the USD, and market sentiment is turning cautious ahead of the Fed’s rate call. The Canadian economy’s performance and the potential for future rate cuts are contributing to the CAD’s decline.