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CAD reaches 28-month strength

CAD - Canadian Dollar

The Canadian dollar continued its 6-week streak as the US dollar weakened further last night. USDCAD, which went below 1.27 earlier this morning, has traded at 28-month lows.

USD continued to weaken across the board, buoyed by relatively positive comments from the Federal reserve on Wednesday. The central bank left interest rates unchanged, dialed up their expectations for growth and put some specific numbers around their quantitative easing program. They decided against extending their asset purchase program, which supports Chairman Powell’s view that the economy should perform strongly in the second half of 2021 thanks to the vaccine. While the Fed has been swayed by vaccine optimism, it will be a long time before they act on those views and start to unwind stimulus, adding to USD weakness.

CAD strength has been pushed by external factors, and internal factors. Employment in Canada increased by 40,800 jobs from October to November according to the November ADP® Canada National Employment Report. It was the first positive job growth in the report since August.

Key Movers

The pound reached two-year highs against the US dollar overnight amidst broader dollar weakness and suggestions that a potential breakthrough on Brexit negotiations could come this weekend. Gains against the euro were more modest, confirming that the foreign exchange market remains guarded on the two sides failing to reach an agreement. Hopes for an end to Brexit negotiations before Friday were quashed late on Wednesday when the UK government announced the House of Commons would close for the Christmas period and MPs would only return should a Brexit deal be agreed with the EU.

The Australian dollar toyed with a break above resistance at 0.7575/0.7580 through trade on Wednesday amid a flood of major headlines and mixed macroeconomic indicators. Signs a US fiscal stimulus bill is imminent and renewed optimism a Brexit deal will be struck, coupled with a surprise uptick in manufacturing and service activity across Europe helped drive risk asset gains and push the AUD toward intraday highs at 0.7579. The AUD gapped lower immediately following the Federal Reserve and FOMC policy meeting as the Fed made no changes to its quantitative easing balance sheet. Some analysts expected further loosening of the monetary policy mandate prompting a short run AUD sell off, marking lows at 0.7540. Markets then quickly reversed the move as Federal Reserve Chairman Jerome Powell addressed reporters in a press conference following the meeting. Powell was quick to remind investors of the Fed’s dovish stance, adamant rates will remain flat through the foreseeable future. Recouping losses, the AUD jumped straight back to 0.7575 and buys 0.7571 at the time of writing.

Expected Ranges

EUR/CAD: 1.551 - 1.558 ▼

GBP/CAD: 1.717 - 1.730 ▼

AUD/CAD: 0.964 - 0.970 ▼

USD/CAD: 1.269 - 1.278 ▲