Home Daily Commentaries Policy divergence weighs on USD/CAD

Policy divergence weighs on USD/CAD

Daily Currency Update

The Canadian dollar strengthened against its U.S. counterpart on Thursday, bouncing back from a five-month low. US data tempered fears that a tight labor market might force the Federal Reserve to take more aggressive steps to raise interest rates. On Wednesday, the Bank of Canada (BoC) elected to become the first major developed central bank to remain on the sidelines on rate increases, keeping its policy rate steady at 4.50%. Economist and market strategist, David Rosenberg, commented in his notes that compared to the US, Canada's economy has a sizable exposure to rate-sensitive sectors, such as housing, and has seen a decrease in consumption. The divergence in the policies of the BoC and Fed is likely to weigh on the USD/CAD pair. BoC member Carolyn Rogers is scheduled to speak later today.

Key Movers

The dollar index (DXY) retreated from its 3-month high in the previous session to trade below 105.40 today. Initial jobless claims for the week ending on March 4 came in worse than what the market had expected at 211,000 versus the market expectation of 195,000.

Yesterday concluded Federal Reserve Chairman, Jerome Powell’s, two-day testimony. Investors have now had time to digest his comments though speaking with a cautious tone, Powell reiterated his message saying the debate on the future path of interest rate hikes was underway and would depend on data. Economic data over the most recent weeks are pointing towards persistent inflationary pressures and has led Powell to comment that the Fed will likely need to increase rates more than anticipated.

EUR/USD traded into positive territory above 1.05550 amid a softer U.S. dollar. While no EU-level data was scheduled for today, country-specific consumer sentiment surveys for March revealed improvements in France and Italy while worsening in Germany and Spain.

GBP/USD recovered momentum and advanced above 1.1900 as the USD came in under bearish pressure due to an increase in weekly initial jobless claims. Data released earlier by UK Thompson Reuters showed that consumer sentiment in the UK declined from 46.2 to 45.00.

Expected Ranges

  • EUR/CAD: 1.4538 - 1.4588 ▼
  • GBP/CAD: 1.6301 - 1.642 ▲
  • AUD/CAD: 0.9089 - 0.9138 ▼
  • USD/CAD: 1.376 - 1.3815 ▼