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USD to CAD Exchange Rate Tumbles from Month-Best Ahead of Bank of Canada (BoC) Policy Decision

September 4, 2019 - Written by Toni Johnson

Concerns that the US economy was also suffering from global trade tensions and the US-China trade war only worsened yesterday when the latest US ecostats fell short of forecasts, and the US Dollar to Canadian Dollar (USD/CAD) exchange rate has fallen back from its best levels in over a month. The Canadian Dollar has also been firming as investors anticipate this afternoon’s key Bank of Canada (BoC) policy decision.

USD/CAD has been gradually climbing over the past month, but last week’s movement was mixed. Despite this, USD/CAD ended last week at the level of 1.3312. Though USD/CAD has been unable to hold onto yesterday’s one month high of 1.3376, the pair could still sustain gains this week if upcoming Bank of Canada news disappoints investors.

At the time of writing, USD/CAD was trending at the level of 1.3322 as investors steady on the pair ahead of this afternoon’s data and BoC news.

USD Exchange Rates Fall Back from Highs as US Manufacturing Data Worsens Economic Outlook

Concerns have risen that the US economy is being negatively impacted by global trade tensions and the ongoing US-China trade war, following the publication of some disappointing US ecostats yesterday.

Tuesday’s American session saw the publication of August’s final US manufacturing PMIs, from both Markit and ISM.

While Markit’s final results beat projections slightly, they still printed at a near-stagnant 50.3.

Investors were even more concerned about ISM’s print, which is typically more influential for the US outlook and showed that manufacturing had unexpectedly contracted at 49.1.

According to Kit Juckes, Currency Strategist at Societe Generale:

‘Yesterday’s manufacturing survey was very gloomy and confirms that the US is suffering from the global trade and manufacturing downturn, along with everyone else,’

The data worsened concerns that the Federal Reserve could be pressured into taking a more dovish stance on the US economic outlook, and renewed speculation of a possible US recession in the coming years.

Still, the US Dollar’s losses have been fairly limited despite this, as the currency remains fairly appealing as a safe haven and reserve currency amid the current global trade uncertainty.

Tom Essaye, Founder of the Sevens Report, said that the US Dollar’s appeal as a safe haven will likely keep it appealing as well:

‘Going forward, the Dollar will have a hard time declining unless the Fed gets aggressively dovish, simply because global growth remains lackluster and global central banks are easing policy or are about to ease policy’

CAD Exchange Rates Firm Ahead of Bank of Canada (BoC) Policy Decision

While the trade-correlated Canadian Dollar has been less appealing as US-China trade war fears returned and oil prices weakened in recent weeks, it has been firming since yesterday as investors await today’s upcoming Bank of Canada (BoC) policy decision.

Speculation of a more dovish BoC has also risen over the past month, due to rising fears of slowing global growth as well as a few signs of slowdown in Canada’s own economy.

However, much of the recent key Canadian data has continued to indicate that Canada’s economy is resilient and is on track for a fairly strong 2019 overall. As a result, Bank of Canada interest rate cut speculation has been mixed.

Many analysts speculate that the BoC will hint at a possible interest rate cut over the next year, but some suggest that the bank will avoid taking a dovish tone at all.

Ultimately, despite the market trade war fears and weaker commodity performance, the Canadian Dollar was sturdy today as investors awaited the afternoon’s BoC decision.

USD/CAD Exchange Rate Forecast: Bank of Canada (BoC) Policy Decision in Focus

The US Dollar to Canadian Dollar exchange rate is still trending above the week’s opening levels, and could start to strengthen again if upcoming Canadian news disappoints CAD investors.

This afternoon will see the publication of notable Canadian stats including trade balance and labour productivity, but the biggest event will be the Bank of Canada’s (BoC) September policy decision.

If the BoC signals possible monetary policy easing as many predict, USD/CAD may avoid further losses. On the other hand, if the bank is more hawkish than expected the Canadian Dollar will strengthen and USD/CAD will fall.

This afternoon’s US trade data will not be hugely influential, but tomorrow’s US non-manufacturing PMI data from ISM will give investors a better idea of how resilient other aspects of the US economy are.

Looking ahead to the end of the week, Canadian job market data and the US Non-Farm Payroll report will drive US Dollar to Canadian Dollar exchange rate movement on Friday.
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