- USD/CAD is down on the day as risk bounces mid-week.
- US/China tensions are eyed. Fed speakers, commodities and US data events are in focus.
At 1.2850, USD/CAD is down 0.23%, falling from a high of 1.2891 to a low of 1.2832 so far on the day. The Canadian dollar is correcting Tuesday's fall that occurred at the start of the week due to investors being concerned over the rising tensions between the United States and China.
Risk has bounced, however, on Wednesday on a combination of dialled down Fed rate hike expectations and the fact that US House of Representatives Speaker Nancy Pelosi to Taiwan has not led to WW3.
During a historic trip to Taiwan Wednesday, Pelosi said her visit was intended to make it "unequivocally clear" that the United States would "not abandon" the democratically governed island. However, China responded to Pelosi's trip by launching military exercises, which China's Ministry of Defense said began on Wednesday with drills in both the seas and airspace surrounding Taiwan.
Frictions after the highest-level US visit to Taiwan in 25 years are likely to help support the safe-haven US dollar for now, which is presumed to weigh on the Canadian dollar, especially considering Canada is a major producer of commodities, including oil, so the currency tends to be sensitive to such tensions.
Fed speakers in play
Nevertheless, the USD dollar index, which tracks the greenback against six major peers, has softened from a two-decade high in mid-July as investors reined in expectations of Fed rate hikes. It has sunk from the 109 area down to a recent low of 105.97 over the course of two weeks. However, a trio of Fed officials signalled on Tuesday the central bank remains "completely united" on increasing rates to a level that will put a dent in the highest US inflation since the 1980s. This has given the greenback a booster and lifted it to 106.819 over the course of the past few sessions.
However, its comeback has been halted by less hawkish comments from San Francisco Fed President Mary Daly who said on Tuesday that a year-end Federal Reserve interest rate of 3.4% is a "reasonable place" to get to. Daly, in an interview with Reuters, also said she does not believe the US central bank has yet reached the threshold for its policy rate to be considered restrictive, seeing that as more at the 3% level than the Fed's current policy rate range of 2.25% to 2.50% after last week's meeting.
She added, however, that 50 basis points would be a reasonable thing to do in September. ''We have a lot in the pipeline in tightening but yet to see that in data showing a slowing of the economy, but if we see inflation roaring ahead undauntedly then perhaps 75 be more appropriate.'' US rate futures pared back 75bp view in Sept after Fed's Daly comments.
Meanwhile, US monthly jobs data due on Friday followed by Consumer Price Index on August 10 will help set the tone for the greenback. The consensus for Nonfarm Payrolls is 250k. That is down from 372k in June. The Unemployment Rate is expected to fall in at 3.6%.
As for positioning, speculators’ CAD net long positions strode higher but remain well below recent highs. The market is still quite confident in the Bank of Canada matching the Fed in terms of raising rates.
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 stabilizes near 1.0800 as trading action turns subdued
EUR/USD holds steady near 1.0800 on Thursday and remains on track to end the day in negative territory following upbeat macroeconomic data releases from the US. The action in financial markets turn subdued as trading volumes thin out heading into Easter holiday.
GBP/USD extends sideways grind above 1.2600
GBP/USD fluctuates in a narrow channel above 1.2600 on Thursday. The better-than-expected Initial Jobless Claims data from the US and the upward revision to the Q4 GDP growth help the USD stay resilient against its rivals and limits the pair's upside.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.