- USD/CAD jumps to 1.3735 as the Canadian Dollar weakens on dismal market sentiment.
- Investors turn risk-averse as trades priced out Fed rate cut hopes for June.
- BoC Macklen sees expectations for the Fed pivoting to rate cuts in June as reasonable.
The USD/CAD pair is advancing towards 1.3750 in Friday’s London session. The Loonie asset extends its winning spell for the third trading session as investors see the Federal Reserve (Fed) pivoting to rate cuts by the third quarter of this year.
Speculation about the Fed delivering rate cuts has waned as consumer price inflation in the United States turned sticky in March. Also, the core Producer Price Index (PPI) data, which shows an increase or decrease in the prices of goods and services, excluding food and energy prices, by owners at factory gates, remains hotter than expected. The annual core PPI grew by 2.4% from estimates of 2.3% and the prior reading of 2.0%.
For now, investors anticipate that the Fed could begin reducing interest rates after the September meeting. Also, investors expect that there will be two rate cuts instead of three, as projected by Fed policymakers in the latest dot plot.
Faded expectations for the Fed lowering interest rates from the June meeting have dented appeal for risk-sensitive assets. S&P 500 futures have posted some losses in the European session. The US Dollar Index (DXY) extends its upside to 105.85. The scenario of the Fed keeping interest rates higher for a longer period bodes well for the US Dollar.
On the Loonie front, the Canadian dollar has weakened due to firm market expectations that the Bank of Canada (BoC) will start lowering borrowing rates in June. After maintaining the status quo on Wednesday, BoC Governor Tiff Macklem said a rate cut in June is possible.
Going forward, expectations of more upside in global oil prices due to escalating geopolitical tensions could support the Canadian Dollar. Fears of Iran’s confrontation with Israel heightened after air strikes on the Iranian embassy in Damascus by the Israeli forces. Also, Israel is preparing to invade Rafae where displaced Palestinians have sheltered.
It is worth noting that Canada is the leading oil exporter to the United States, and higher oil prices support the Canadian Dollar.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD flirts with daily tops near 1.0730
The continuation of the selling pressure in the Greenback now lends further oxygen to the risk complex, encouraging EUR/USD to revisit the area of daily highs near 1.0730.
USD/JPY looks stable around 156.50 as suspicious intervention lingers
USD/JPY remains well on the defensive in the mid-156.00s albeit off daily lows, as market participants continue to digest the still-unconfirmed FX intervention by the Japanese MoF earlier in the Asian session.
Gold advances for a third consecutive day
Gold fluctuates in a relatively tight channel above $2,330 on Monday. The benchmark 10-year US Treasury bond yield corrects lower and helps XAU/USD limit its losses ahead of this week's key Fed policy meeting.
Week Ahead: Bitcoin could surprise investors this week Premium
Two main macroeconomic events this week could attempt to sway the crypto markets. Bitcoin (BTC), which showed strength last week, has slipped into a short-term consolidation.
Five Fundamentals for the week: Fed fears, Nonfarm Payrolls, Middle East promise an explosive week Premium
Higher inflation is set to push Fed Chair Powell and his colleagues to a hawkish decision. Nonfarm Payrolls are set to rock markets, but the ISM Services PMI released immediately afterward could steal the show.