USD CAD Exchange Rate Slides as Fed Appears to be in No Hurry to Hike Rates

February 23, 2017 - Written by Ben Hughes

STORY LINK USD CAD Exchange Rate Slides as Fed Appears to be in No Hurry to Hike Rates

The US Dollar to Canadian Dollar exchange rate trended flatly near the week’s opening levels on Friday afternoon after hitting a new weekly low of 1.3064.

Demand for the Canadian Dollar improved following the publication of Canada’s impressive January Consumer Price Index (CPI) results. Year-on-year inflation rose from 1.2% to 2.1% while month-on-month inflation improved from -0.2% to 0.9%. Inflation comfortably beat forecasts of 1.6% and 0.3% respectively.

[Previously Updated 23/02/2017]

The USD CAD exchange rate fell by around half a cent from a weekly high yesterday as markets reacted poorly to the release of the Federal Open Market Committee’s (FOMC) minutes from its latest meeting.

US Dollar Canadian Dollar (USD CAD) Weakened by Dovish FOMC Minutes

The US Dollar Canadian Dollar (USD CAD) exchange rate remains subdued this morning after the minutes from the Federal Reserve’s latest meeting dampened investors’ hopes for a rate hike in the near future.

Odds of a March rate hike are now at only 18% as markets believe that the Fed will not seek to accelerate the pace of interest rate rises, despite promising up to three hikes this year at the end of 2016.

While many policymakers appeared to be willing to raise rates ‘fairly soon’ if domestic data continued to perform well, the underlying uncertainty surrounding new administration looked to push most members to favour a more dovish approach.

Members are still wary about Donald Trump’s economic policies as despite making ambitious plans to increase government spending on a number of infrastructure projects the president and his team are still yet to outline how he intends to achieve this.

Markets are now predicting that the next Fed rate hike will happen in June as policymakers hope the extra time will give Trump a chance to clarify his economic position.

Canadian Dollar Stabilises despite Disappointing Retail Sales

The Canadian Dollar held steady this morning despite a downtrend in Retail Sales yesterday thanks to the weakened US Dollar.

Canadian retail sales tumbled from 0.3% to -0.5% in December, sliding further than the 0.2% drop expected and reaching a nine-month low as consumers appeared to rein in their spending over the holiday period.

The drop has softened expectations that Canada will see economic growth at the end of 2016, with Nick Exarhos, economist at CIBC stating;

‘It puts a dent into what was otherwise looking like a firm performance for December GDP.’

The slump has also stoked fears that the Bank of Canada (BoC) will vote to leave its monetary policy unchanged next week, with there being even less incentive for the Bank to follow its counterpart in the US by raising interest rates.

USD CAD Exchange Rate Forecast: UK Public Sector Borrowing Ahead

The USD CAD exchange rate may mount a recovery later this afternoon however as US Continuing Jobless Claims are expected to have fallen from 2076k to 2068k in February, although the US Dollar’s advance may be slowed by forecasts that new claims will climb over the same period.

Meanwhile the Canadian Dollar may climb higher again on Friday as the domestic inflation rate is expected to rise from 1.5% to 1.6% in January, although an unexpected drop could send the ‘Loonie’ reeling.

Current Interbank Exchange Rates

At the time of writing the USD CAD exchange rate was trending around 1.31 and the CAD USD exchange rate was trending around 0.76.

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