- The US dollar continues to lose ground as US data beats expectations.
- The strong US economic outlook and labor market tightness call into question the Fed's easing hopes.
- Loreta Mester hints at rate cuts in 2024, but does not specify any timetable.
The Canadian dollar (CAD) sells off for the second day in a row this Tuesday, as the greenback consolidates its gains, boosted by strong US macroeconomic data. Strong rebound in US February factory orders and higher-than-expected JOLTS job openings add to evidence of a strong US economy and cast doubt on short-term easing plans term of the Federal Reserve (Fed).
Tuesday's data confirm Monday's picture of a strong manufacturing sector combined with a tight labor market. This “no landing” scenario gives new reasons to Fed hawks to keep borrowing costs higher for longer and is putting upward pressure on US Treasury yields.
The president of the Cleveland Fed, Loreta Mester, assured that the entity will cut rates in 2024, although she added that they may need more time to confirm that the inflation trend continues at the appropriate pace. Later, San Francisco Fed President Mary Daly, another hawk, will meet with reporters. However, the highlight of the week will be Friday's Nonfarm Payrolls report.
Daily Market Moves Summary: USD/CAD consolidates gains as US data casts doubt on Fed's easing plans
- The Canadian Dollar has lost 0.3% over the past two days, while the rebound in oil prices has prevented further depreciation of the Canadian Dollar.
- Loreta Mester, of the Fed, assured that she expects rate cuts this year, although she ruled out any movement at the May meeting.
- US factory orders rose 1.4% in February, following a 3.8% decline in January and beating expectations for a 1% increase.
- At the same time, the US Bureau of Labor Statistics revealed that JOLTS Job Openings increased by 8.756 million in February from 8.748 million in January, above the market consensus of 8.74 million.
- On Monday, the US ISM Manufacturing PMI rose to 50.3 in March from 47.8 in February, beating market expectations for a reading of 48.4.
- Prices paid in the manufacturing sector have rebounded to 55.8, their highest level since July 2022, and a positive contribution to inflationary trends.
- Oil prices have reached levels above $85 for the first time since October. This is cushioning the Canadian Dollar reversal.
Price of the Canadian Dollar this week
The following table shows the percentage change of the Canadian Dollar (CAD) against the main currencies quoted this week. The Canadian Dollar was the strongest currency against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.24% | 0.54% | 0.37% | 0.35% | 0.14% | 0.40% | 0.59% | |
| EUR | -0.24% | 0.30% | 0.13% | 0.11% | -0.10% | 0.15% | 0.35% | |
| GBP | -0.54% | -0.30% | -0.17% | -0.18% | -0.41% | -0.14% | 0.05% | |
| CAD | -0.38% | -0.12% | 0.16% | -0.03% | -0.24% | -0.01% | 0.21% | |
| AUD | -0.35% | -0.11% | 0.19% | 0.01% | -0.21% | 0.04% | 0.25% | |
| JPY | -0.14% | 0.13% | 0.41% | 0.25% | 0.25% | 0.27% | 0.45% | |
| NZD | -0.40% | -0.13% | 0.17% | 0.00% | -0.04% | -0.25% | 0.20% | |
| CHF | -0.60% | -0.34% | -0.04% | -0.21% | -0.23% | -0.46% | -0.21% |
The heat map shows the percentage changes of the major currencies against each other. The base currency is chosen in the left column, while the quote currency is chosen in the top row. For example, if you choose the Euro in the left column and scroll down the horizontal line to the Japanese Yen, the percentage change that appears in the box will represent EUR (base)/JPY (quote).
Technical Analysis: USD has room to rise towards the resistance zone of 1.3615
USD/CAD rebounded on Monday and is gaining bullish traction amid a favorable fundamental outlook. With US Treasury yields healing north, USD bearish attempts are expected to remain limited.
The pair continues to move within a slightly bullish channel with the previous resistance at 1.3565 as support. The next bullish target is the resistance zone at 1.3615, the 61.8% Fibonacci retracement of the late 2023 decline at 1.3630, and the channel ceiling at 1.3635. Below 1.3565, the next support is 1.3520.
USD/CAD 4-hour chart
Frequently asked questions about the Fed
What does the Federal Reserve do and how does it affect the dollar?
The monetary policy of the United States is directed by the Federal Reserve (Fed). The Fed has two mandates: achieving price stability and promoting full employment. Your main tool to achieve these objectives is to adjust interest rates.
When prices rise too quickly and inflation exceeds the 2% target set by the Federal Reserve, it raises interest rates, increasing borrowing costs throughout the economy. This translates into a strengthening of the United States Dollar (USD), as it makes the United States a more attractive place for international investors to place their money.
When inflation falls below 2% or the unemployment rate is too high, the Federal Reserve can lower interest rates to encourage borrowing, which weighs on the greenback.
How often does the Federal Reserve hold monetary policy meetings?
The Federal Reserve (Fed) holds eight meetings a year, in which the Federal Open Market Committee (FOMC) evaluates the economic situation and makes monetary policy decisions.
The FOMC is made up of twelve Federal Reserve officials: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the eleven presidents of the regional Reserve banks, who serve for one year on a rotating basis.
What is Quantitative Easing (QE) and how does it affect the USD?
In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed's weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE usually weakens the US dollar.
What is Quantitative Tightening (QT) and how does it affect the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the capital of the maturing bonds it has in its portfolio to buy new bonds. It is usually positive for the value of the US Dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
