6 December 2022 | Other

The Canadian dollar fell 1%, spooked by strong data on the US economy

The Canadian dollar fell by 1% against the US dollar, reaching its lowest value in six days. This is due to investors' worries, who expect to see further rate hikes amid signs of economic resilience in the United States.

Tony Valente, senior FX dealer at AscendantFX, said the weakening of the Canadian currency is due to the fact that the movement in the currency continues to correlate more with the S&P 500 index than with the price of oil. 

He also added that at the moment, strong economic data are perceived by the market as bad news, because they will be followed by further rate hikes by the central banks of the US and Canada.

Along with discussing the issue of stopping excessive interest rate hikes, Canada's central bank is facing an overheated economy and strong bond market signals of a coming recession and lower inflation.

A new meeting of the BoC will take place this Wednesday. Money markets expect to see an increase of 25 basis points, while an overwhelming number of economists polled by Reuters forecast a larger increase.

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