Home Daily Commentaries CAD softens ahead of US Fed announcement

CAD softens ahead of US Fed announcement

Wednesday 3 November, 2021

Daily Currency Update

CAD - Canadian Dollar

Demand for the Canadian dollar softened against the US dollar ahead of Wednesday’s US Federal Reserve policy meeting and as oil prices fell. USDCAD was up 0.15%, trading at around 1.2423. For the first time since the pandemic began, the US central bank could soon reduce the stimulus they provided during the COVID-19 crisis. Given the significance of this move and what it means for the central bank’s economic outlook, one may expect the US dollar to strengthen more than it has, but since this is the market's worst kept secret in the last few months, it looks like these moves may have already been priced in. Markets will be paying close attention to US Federal Chair Jerome Powell’s commentary and any mention about the pace and timeline for tapering. The expectation is that the bank will taper at a rate of $15 billion per month, and the exercise will finish in the middle of 2022. But an increase on this is possible if the speed of inflation is greater than expected. This could be deemed aggressive and we may see the US dollar strengthen. On the contrary, if we see weak data in the US, then this tapering could be slowed down, potentially putting pressure on the US dollar in the process.

Key Movers

The euro edged lower against the US dollar and the pound on Wednesday after European Central Bank President Christine Lagarde said “despite the current inflation surge” a rate rise next year was “very unlikely.” The Bank of England remains in the spotlight ahead of Thursday’s policy announcement, with what could be the most eventful central bank meeting we have seen from them in recent times. After the emergency cut was made to the interest rate at the height of the pandemic, there is speculation that the UK's central bank will now reverse this decision, increasing the base rate by 15 bps or 0.15%. Soaring energy prices and supply chain issues have put prices on an upward trajectory, and Bank of England Governor Andrew Bailey stated that 'monetary policy can't solve supply side problems, but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations’. GBPUSD was up 0.32% sitting at around 1.3657 at the time of writing.

Expected Ranges

  • EUR/CAD: 1.4359 - 1.4401 ▲
  • GBP/CAD: 1.6878 - 1.6981 ▲
  • AUD/CAD: 0.9206 - 0.9249 ▲
  • USD/CAD: 1.2391 - 1.2448 ▲