By Ketki Saxena
Investing.com -- The Canadian dollar strengthened against its U.S. counterpart today as risk appetite returned to markets following upbeat megacap earnings, better than expected U.S. economic data and most importantly - a (relatively) dovish tilt in forward guidance from the Federal Reserve following the U.S. Central Bank’s widely anticipated 75 basis point hike.
At 3:50 p.m ET, the USD/CAD pair was trading at C$1.2822 to a greenback, down -0.46% in the day's trading and with the day's range of 1.2809 - 1.2910.
While a 75 basis point hike had nearly unanimously been priced into markets prior to the hike, investors gleaned further direction from press conference comments by Fed Chair Jerome Powell indicating the central bank will likely slow its pace of tightening as the economy cools, with policymakers acknowledging that “recent indicators of spending and production have softened”.
Despite noting that another "unusually large" hike might be on the way in September, the Fed Chair significantly noted that “As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases...while we assess how our cumulative policy adjustments are affecting the economy and inflation”.
The 2-year Treasury yield, sensitive to Fed rate hikes, slipped sharply following the remarks, and the Canadian dollar gained sharply against its counterpart.
Risk sentiment also retreated further following better than expected U.S. economic data today, including Durable Good Orders for June that rose more than estimations, and Trade Balance which narrowed for the third straight month.
The return of risk appetite, which eased demand for the safe-haven greenback and supported today’s rally in equities also boosted the prospect for crude, as worries of recession-driven demand destruction appear to be held at bay - for the moment.
Crude was also supported by the EIA’s report of a significant weekly drop in U.S. crude stockpiles and gasoline inentories.
U.S. crude oil inventories slumped by 4.52 million barrels last week, against a forecast drop of 1.5 million, the Energy Information Administration said in its Weekly Petroleum Status Report. Crude stocks fell 446,000 barrels the prior week, after an earlier two-week buildup of almost 11.5 million barrels.
Investors will not have long to wait for the next defining events for the pair. U.S. Q2 Advance GDP data due tomorrow will confirm if the US entered a technical recession. Canada's May GDP data due Friday, meanwhile, will be watched as a key indicator on the state of the domestic economy.
FX Daily notes the following trends for the USD/CAD pair today in the aftermath of the Fed’s rate hike:
Daily SMA20 | 1.2946 |
Daily SMA50 | 1.2857 |
Daily SMA100 | 1.2776 |
Daily SMA200 | 1.2717 |