USD/CAD rises to 1.3440 on risk aversion despite dovish Fed comments

• The Canadian dollar extended its losses amid a state of risk aversion.
• New York Fed President Williams said the Fed could raise interest rates in 2024.
• Canada ran a current account deficit, putting a headwind for the Loonie.

The Loonie (CAD) extended its losses to two straight days, although it pared some of its losses after USD/CAD hit a daily high of 1.3473, but pulled back towards the current spot price. Factors such as China’s revolt due to Covid-19 zero-tolerance policies and Federal Reserve (Fed) officials, which set the stage for a slower rise in borrowing costs, limited the USD/ EXP. At the time of writing, USD/CAD is trading at 1.3442.

Fed’s Williams was dovish, eyeing first rate cut

Risk aversion is the name of the game on Monday. Protests in China related to Covid-19 lockdowns and mass testing, and fears that if they escalate they could derail the global economy, weighed on investor sentiment. Federal Reserve officials gave statements, led by New York Fed President John Williams, saying that the Fed could cut rates in 2024a dovish statement that sent USD/CAD falling from 1.3452 to 1.3425.

Earlier, Williams said he expects inflation to fall to 5.0-5.5% by the end of 2022 and 3.0-3.5% by the end of 2023, noting that the baseline forecast does not predict a US recession. Meanwhile , St. Louis Fed President James Bullard said the Fed should keep raising rates through 2023. He said rates should hit the lower end of the 5-7% rate range, adding that a recession is not inevitable.

Traders should remember that the Federal Reserve’s Open Market Committee (FOMC) minutes from the last meeting indicated that “a substantial majority of participants judged that a slowdown in the rate of increase would likely be appropriate soon,” cementing the dovishness. of interest rates by the Fed.

Lately, the president of the Cleveland Federal Reserve, Loretta Mester, stated that she does not believe the Fed is close to a tightening pause, reiterating her hawkish stance. Traders should know that Mester expects the FFR to end around 5%.

Canada posted a current account deficit of C$11.1 billion ($8.3 billion) in the third quarter, after surpluses in the first two quarters of 2022, according to Statistics Canada data.

Key USD/CAD Technical Levels