USD/CAD – Bullish Fed Sends Canadian Dollar To 8-Week Low

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The Canadian dollar has posted losses in the Friday session, following the trend seen on Thursday. Currently, USD/CAD is trading at 1.3195, up 0.31% on the day. The pair is trading at its highest level since early September. There are no Canadian events on the schedule. In the U.S., PPI and Core PPI are both expected to post gains of 0.2% for October, unchanged from the September readings. As well, UoM Consumer Sentiment is forecast to slow to 98.0 points.

After the intense excitement surrounding the U.S. mid-term elections, the Federal Reserve meeting paled in comparison. The markets were not expecting much drama, as it was not really a “live meeting” – there was virtually no chance of a rate hike and no press conference from Fed chair Jerome Powell. Fed policymakers continued to sound hawkish in the rate statement, in a similar vein to the previous statement in September. Fed policymakers noted that job creation is solid, unemployment is down and consumer spending has been growing. The one caveat to this rosy picture was that business investment has slowed. The statement added that further “gradual increases” are expected, given that headline and core inflation are close to the Fed target of 2 percent. The Fed next convenes in mid-December, with the CME Group pegging the odds of a December rate hike at a strong 76 percent.

A red-hot U.S economy has helped boost the Canadian economy, which continues to perform well. This was underscored on Thursday by a superb reading from Ivey PMI, a key gauge of economic activity. The indicator surged to 61.8 in November, up sharply from 50.4 in October. This reading easily beat the estimate of 50.9 points. Earlier this week, Bank of Canada Governor Stephen Poloz said that the Bank would continue gradually raising rates from the current 1.75% to a “neutral stance” of between 2.5% and 3.5%. The magic question for investors is how quickly the BoC will move in this direction. The BoC has raised rates some five times in the past 15 months, and upcoming rate hikes will help make the Canadian dollar an attractive option for investors.
 
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