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CAD Rattled By FOMC, Risk Aversion

By Kenny FisherForexAug 19, 2021 11:40
CAD Rattled By FOMC, Risk Aversion
By Kenny Fisher   |  Aug 19, 2021 11:40
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The Canadian dollar is sharply lower on Thursday, as the currency has fallen to a four-week low. Currently, USD/CAD is trading at 1.2809, up 1.18% on the day.

FOMC Signals Taper Is On The Way

The FOMC minutes signalled that the Fed plans to scale back its monthly bond purchases, likely before the end of the year. However, the minutes indicated that any taper was not linked to a rate hike increase. Members noted that the inflation goal had been reached, making tapering possible, but that employment had not met the Fed’s benchmark of “substantial further progress,” and there would be no rate hike until this goal was achieved. The Fed has repeatedly stated that it does not plan to raise rates before tapering is completed, but felt the need to emphasize in the minutes that there was no mechanical link between tapering and rate hikes. Investors viewed the minutes as hawkish, and the U.S. dollar has responded by pummelling the Canadian dollar.

Next week’s Jackson Hole Summit will be closely watched for further signs from the Fed regarding a taper, possibly at the December meeting. Fed Chair Jerome Powell has taken great pains to telegraph his plans and keep the market in the loop. This means that if the Fed decides on a taper, it would clearly notify the markets at Jackson Hole or at the September meeting. With investors on guard for a tapering signal, I expect sentiment towards the U.S. dollar to remain strong next week.

With the Delta variant of COVID curbing hopes of a global recovery, risk sentiment has faded, which has hurt minor currencies like the Canadian dollar. The loonie is having a dismal week, as USD/CAD is up 2.36%.

Canada ADP (NASDAQ:ADP) Employment Report Shines

Canada’s labor market has plenty of slack, but there was positive news from the July ADP employment report. The economy created 221,300 jobs in July, bouncing back from the previous read of a loss of 106,200. The official July employment data, released earlier this month, showed a healthy gain of 94,000 jobs, but this was shy of the consensus of 150,000.

USD/CAD Technical

USD/CAD Daily Chart.
USD/CAD Daily Chart.

  • USD/CAD continues to rise and break above resistance lines. The pair is testing resistance at 1.2747 and the next resistance line is 1.3030.
  • There is support at 1.2630, followed by support at 1.2573.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

CAD Rattled By FOMC, Risk Aversion

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CAD Rattled By FOMC, Risk Aversion

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