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US Dollar to Canadian Dollar Marches Higher Despite Bank of Canada?s Hawkishness

Published: 26 Oct at 12 PM Tags: Euro Exchange Rate, Dollar Exchange Rate, Currency Exchange, Canadian Dollar Exchange Rate, Euro Crisis, UK, Exchange Rates, Economy,

Despite a hawkish tone taken by the Bank of Canada (BoC) during the bank’s policy decision this week, the US Dollar to Canadian Dollar (USD/CAD) exchange rate saw some late week climbs as investors remained hungry for safe haven currencies.

After opening the week at the level of 1.3088, USD/CAD saw tight movement for most of the week until the Bank of Canada’s policy decision, which knocked the pair to a weekly low of 1.2976.

However, after that the US Dollar quickly recovered against the Canadian Dollar. At the time of writing on Friday, USD/CAD continued to climb and trended near a one-month-high of 1.3151.

Demand for the US Dollar has been solid in recent sessions, as US data beats expectations and markets remain hesitant to buy riskier trade-correlated currencies, instead options for safe haven currencies like the US Dollar.

As well as political uncertainties in the UK and Italy, investors have been eager to buy safe haven currencies due to a poor week for global stock markets.

US markets, as well as markets in Europe and Asia, have all slumped throughout the week, putting global markets on track for their worst week in five years.

As well as stronger demand for safe haven currencies, the US Dollar’s strength has been bolstered by recent US ecostats. Thursday saw the publication of US durable goods orders from September, which printed at 0.8% rather than the expected -1%.

US pending home sales on Thursday were solid too, as were Markit’s US PMI projections on Wednesday, indicating that the US economy was still seeing solid growth. This was despite analysts predicting that US growth had slowed notably in Q3 compared to Q2.

The relatively risky trade-correlated Canadian Dollar was unable to hold its ground against this stronger US Dollar towards the end of the week, despite the brief surge it experienced following the Bank of Canada (BoC) decision on Wednesday.

The Bank of Canada indicated that it would ramp up the pace of its monetary policy tightening, as Canada’s economy ran at full capacity. The bank was also optimistic about the new US-Canada trade deal.

However, as the bank’s tone was ultimately not hugely surprising, Wednesday’s Canadian Dollar surge was perceived as too bullish.

On Thursday, the Canadian Dollar gave up most of its gains and on Friday the currency continued to be dragged lower by market demand for safe haven currencies.

Still, the US Dollar could shed some of its Friday gains before the end of the week if the upcoming US Gross Domestic Product (GDP) projection falls short of expectations.

Analysts already expect that US growth will have slowed from 4.2% to 3.3% quarter-on-quarter in Q3. If the print comes in even lower, investors will become more anxious about the impact of US protectionism on the US economy.

Other figures to keep an eye on this afternoon includes US Personal Consumption Expenditure (PCE) prices projections for Q3 and Michigan University’s October consumer sentiment stats for October.

More major US and Canadian data will be published next week, with more US PCE data from September coming in on Monday and Canada’s August GDP growth rate report on Wednesday.

The week will be rounded off by Canadian and US employment stats, with US Non-Farm Payrolls typically highly influential. US Dollar to Canadian Dollar exchange rate will also continue to be influenced by developments in risk-sentiment.