USDCAD rises amid central bank signals monetary policy tightening

27 September 2023 163
USDCAD rises amid central bank signals monetary policy tightening

The USDCAD pair again moves to growth after several weeks of decline. Many things became clear on yesterday's trading day. The U.S. dollar strengthened against the growing oil. This movement was caused by negative expectations of analysts regarding the Canadian economy.

As economists say, the Bank of Canada will keep the interest rate around the current level of 5% until the third quarter of 2024.

According to a Bloomberg poll, the central bank will cut rates only once in the first half of next year. The rate will still be at 3.5% in early 2025.

This forecast differs from previous surveys in which economists expected the Bank of Canada to decrease rates more quickly.

The Canadian economy may be more sensitive to high rates than the American one. Most borrowers in the country have difficulties because banks refuse to fix rates for more than five years. This creates a risk for the Canadian economy. However, the sustainable U.S. growth helps it, which is the buyer of the vast majority of Canadian exports.

The probable weakness in Canadian GDP will put pressure on the national currency.

Meanwhile, the USDCAD may continue to grow as the economic situation in the world worsens.

The dollar remains at a ten-month high against major currencies thanks to significant government bond yields and the prospect of a rate hike in the U.S.

On Tuesday, the president of the Federal Reserve Bank of Minneapolis Neel Kashkari, said there was a 40% chance that the regulator would significantly increase the interest rate to fight inflation.  

Meanwhile, U.S. consumer confidence fell to a four-month low in September on persistent concerns about rising prices and growing fears of recession. The U.S. dollar strengthens amid the country’s interest rates remaining high for longer. 

According to technical analysis, the USDCAD pair demonstrates an attempt for a reversal against oil growth. This confirms the weakness of the Canadian dollar amid the Fed's hawkish rhetoric and traders' withdrawal from risky assets in the world.

The growth target will be the level of the previous high at 1.368. It is also a resistance level for the currency pair. A stop-loss will be set at updating the local high at 1.337.

Increase in USDCAD:

Take profit — 1.368

Stop-loss — 1.337

This content is for informational purposes only and is not intended to be investing advice.

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