CAD trades sideways ahead of Fed decision
Monday 1 May, 2023
Daily Currency UpdateThe Loonie declined along with most other major currency peers in overnight trading sessions (Asian and European) against the US dollar. The main catalyst was upgraded odds anticipated by market participants of the Federal Reserve increasing its policy rate by a quarter-point on Wednesday, from 5% to 5.25%. Furthermore, interest rates show that US two-year yield exceeds its Canadian counterpart by around 40 basis points (bps), up from 35 bps on Friday. The 10-year yield spread is near 60 bps in favor of US versus Canadian interest rates. This situation favors the US dollar over the Canadian dollar for now. At the same time, West Texas Intermediate crude oil futures dropped to around 2% on Friday. In manufacturing news, Canada's April Manufacturing Purchasing Manager’s Index (PMI) came in at 50.2, which is an increase from 48.6 in March. However, it has not helped the Loonie as the USD/CAD pair is still trading in a wide range of the 1.35 and 1.36 levels. On a more positive note, more than 120,000 striking federal workers are set to return to work after the Canadian government reached a tentative agreement with the Public Service Alliance of Canada.
Key MoversThe US dollar continues to trade in the middle of the major currencies pack as the market awaits the Federal Reserve’s announcement on Wednesday. US manufacturing is still contracting however the rate of contraction has eased. The S&P Global US Manufacturing Purchasing Manager’s Index (PMI) came in at 50.4 versus last month’s 50.2. After the anticipated rate hike on Wednesday, low odds are given to additional increases beyond that. Market participants anticipate around a 1 in 3 chance of a June hike after the May hike and a 2 in 3 chance of a rate hike pause in June after the hike in May. Analysts continue to anticipate rate cuts by the year-end. However, sophisticated market participants will want to follow any signal that shows signs of a rate hike pause via a change in language in the Federal Open Market Committee’s (FOMC) statement.
- EUR/CAD: 1.0968 - 1.1034 ▼
- GBP/CAD: 1.2488 - 1.2569 ▼
- AUD/CAD: 0.6610 - 0.6667 ▲
- USD/CAD: 1.3534 - 1.3582 ▼