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US Dollar Canadian Dollar (USD/CAD) Exchange Rate Sinks as Dovish Fed Expectations Dampens US Market Sentiment

July 10, 2019 - Written by John Cameron

USD/CAD Exchange Rate Falls as ‘Loonie’ Traders Optimism Rises ahead of BoC Statement

The US Dollar Canadian Dollar (USD/CAD) exchange rate fell by 0.3% today, with the pairing fluctuating around CA$1.309.

The Canadian Dollar (CAD) fell against the US Dollar (USD) with expectations rising that the Bank of Canada (BoC) could buck international trends and raise its growth forecast later on today.

Royce Mendes, a Senior Economist at CIBC Capital Markets, commented:

‘The Bank of Canada set a pretty low bar in terms of its second-quarter growth numbers. The [BoC] will have to decide whether it believes that there’s further for this momentum to go.’

Today will also see the BoC announce its interest rate decision, which is expected to hold at 1.75%

The US Dollar, meanwhile, has weakened ahead of the Federal Reserve Chairman Jerome Powell’s testimony later on this afternoon.

Expectations are running high that Mr Powell will provide a dovish assessment, which has continued to push downwards pressure on the ‘Greenback’.

Konstantinos Anthis, Head of Research at the financial services company ADSS, commented:

‘Jerome Powell’s outlook on the domestic economy and his comments on whether a rate cut is needed at this stage is all investors care about.’

CAD/USD Exchange Rate Improves as US-China Trade Discussions Renew

The Canadian Dollar edged higher against the ‘Greenback’ as hopes rise on improving developments surrounding US-China trade discussions.

As the Canadian economy is sensitive to global trade development, any indications of easing tensions between the two superpowers restores market confidence in the trade-sensitive ‘Loonie’.

US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin were in discussions with Chinese Vice Premier Liue He and Commerce Minister Zhong Shan yesterday.

An Official at Chinese Ministry of Commerce said:

‘[These talks were to] continue negotiations aimed at resolving the outstanding trade disputes. [B]oth sides will continue these talks as appropriate.’

CAD could benefit further from comments from Stephen Poloz, the Governor of the BoC, who is due to deliver his take on the Canadian economy today.

Alicia Macdonald, a Principal Economist at the Conference Board of Canada, expects him to remain cautious however, saying:

‘I think we’re going to see a very balanced statement and no direction in terms of when we might see policy rates move.’

CAD/USD Outlook: US and Canadian Central Banks Mood in Focus

US Dollar traders will be looking ahead to tomorrow’s US inflation data for June.

Any signs of an increase could provide the USD/CAD exchange rate with some uplift.

Tomorrow will also see the printing of US unemployment data.

Canadian Dollar traders, meanwhile, will be looking ahead to tomorrow’s Canadian new housing price index figures for May.

The USD/CAD exchange rate will however remain sensitive to discussions coming from both nation’s central banks, and with any dovishness from the US Federal Reserve, we could see the ‘Loonie’ begin to rise higher.

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