USD/CAD hits new 2-month high on surging US dollar
James Chen, CMT February 27, 2018 4:28 PM
As the US dollar remained elevated on Tuesday in the aftermath of Federal Reserve Chair Jerome Powell’s hawkish statements in front the US House Financial Services Committee, USD/CAD broke out to a new 2-month high, tentatively confirming a continuation of the uptrend that has been in place since early February.
Late last week, the currency pair fell when the Canadian dollar surged after Canadian Consumer Price Index inflation data for January showed that prices rose substantially more than expected at +0.7% against prior expectations of +0.4% and a previous month’s reading of -0.4%. The unexpectedly high inflation reading boosted the Canadian dollar as markets speculated on the higher potential for more policy tightening and rate hikes by the Bank of Canada.
Since that data was released last week, however, market focus has shifted squarely towards the US Federal Reserve’s outlook for rate hikes as indicated by Powell’s testimony that began on Tuesday. As it turned out, Powell’s testimony was more hawkish than might have been expected, as the Fed Chair hinted at potentially more rate hikes than previously projected due to significant strides in the economy, strength in the labor market, higher wage growth, rising inflation expectations, and changes in fiscal policy.
For USD/CAD, although higher inflation did indeed drive some speculation of a potentially more hawkish Bank of Canada, the Fed’s rather clear hawkish shift has underlined the continuing differences in policy stances between the US and Canadian central banks.
With continued speculation on a more hawkish Fed, USD/CAD is potentially poised to extend the short-term bullish trend that has been in place since early February. Any such continuation should target the next major resistance level to the upside around 1.2900, which represents the highs of late 2017.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.