The Canadian dollar continues to have a quiet week, as the US dollar has steadied and the currency markets are calm. Currently, USD/CAD is trading at 1.2736, down 0.22% on the day. Canadian data was mixed. Housing Starts climbed to 246 thousand in November, up from 215 thousand beforehand. However, Manufacturing Sales slowed to just 0.3% in October, down from 1.5 per cent in the previous release.

Markets await FOMC meeting, Canada inflation

We could see stronger movement from the sleepy Canadian dollar on Wednesday, with key events on both sides of the border. The highlight of the day will be the FOMC policy meeting, the final meeting of what has been a tumultuous year for the Federal Reserve. Economic conditions have deteriorated in the US since the November meeting, adding pressure on the Fed to take additional easing measures to boost the economy. The problem for Fed policymakers is that their arsenal is limited – interest rates are close to zero and the Fed is already buying USD120 billion/mth in bond purchases in its QE scheme. We may see the Fed extend the QE program, or more dramatically (but less likely) raise the amount of bond purchases. Fed Chair Powell would love to know if Congress will pass a massive stimulus program shortly, as he has constantly appealed for government support.

The upcoming policy meeting could have a major effect on the movement of the US dollar. Investors and traders will be closely following what steps the Fed announces, but perhaps as important is the tone of the rate statement – if policymakers sound down on the US economy, the greenback could resume its slide. Conversely, a vote of confidence in the economy would likely boost sentiment towards the US dollar.

Canada releases November inflation data, and analysts are bracing for soft numbers. Headline inflation is expected to slow to just 0.0%, down from 0.4% beforehand. With Covid-19 showing a resurgence, the road to recovery promises to be bumpy, and low inflation is reflective of weak economic conditions. If CPI lands in negative territory, the Canadian dollar could lose ground.

USD/CAD Technical

  • USD/CAD faces resistance at 1.2768. The next resistance line is at 1.2894
  • There is support at 1.2704, followed by a support line at 1.2642
  • The 10-day MA line remains relevant, slightly above the pair