- USD / CAD falls on widespread US dollar weakness amid falling US Treasury yields.
- According to BBH, fed funds futures have a 66% chance of a takeoff in the second quarter, while a hike in the third quarter has a full price.
- BOC’s Tiff Macklem: The economic well is not yet absorbed, but “we are getting closer.”
After reaching four-week highs, the USD / CAD it plunges for the second day in a row, down 0.18%, trading at 1.2524 for the day at the time of writing. The drop is mainly driven by a weak US dollar, caused by weaker-than-expected University of Michigan consumer sentiment that plunged to a 10-year low in November amid concerns about the pace of high prices. . Additionally, a drop in US bond yields weighed on demand for the US dollar, which is in defensive mode at the beginning of the week.
Meanwhile, crude oil prices fell as investors await the next move from the White House regarding high gasoline prices. Speculation is mounting that US President Joe Biden will release supplies from the Strategic Petroleum Reserve (SPR), which could weigh on the Canadian dollar pegged to oil commodities, potentially raising the pair’s outlook. USD / CAD.
The week of reduction of purchase of the Fed bonds begins
According to Brown Brothers Harriman (BBH), in a note to clients it said that “the New York Fed last week released an updated purchasing calendar that will result in total purchases of $ 70 billion in USTS and $ 35 billion in MBS dollars this month. The way the bonds are being traded this week will be important to understand the potential impact of the reduction. “They also added that at that rate, QE will end in June 2022.
BBH added that “Fed funds futures still have a nearly two-thirds chance of a second-quarter takeoff, which seems too early, while a third-quarter take-off comes at a full price. Strong data and rising inflation they will probably keep the upward pressure on US rates. “
At the time of writing, Tiff Macklem, governor of the BoC, said that the economic slack in the Canadian economy has not yet been absorbed, but that “we are getting closer”, adding that QE is no longer necessary. Furthermore, he added that if the BoC is wrong about lasting inflation, it will “tighten.”
That said, the USD / CAD pair could consolidate, as investors say the Bank of Canada (BoC) is expected to raise rates before the Federal Reserve, but a change in the QE reduction pace of the Fed could reduce the bond spread. between the US and Canada, favoring the dollar in the medium term.
Technical levels / Support and resistance levels