The Loonie plunges following a “hawkish rate cut” by the U.S. Fed
Thursday 1 August, 2019
Daily Currency UpdateCAD - Canadian DollarThe Loonie continues to fall this morning, despite an improvement in manufacturing numbers. The USD/CAD is rising 0.40 percent (weaker Loonie), trading at 1.3243 at the time of this writing. According to IHS Markit, the seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers' Index (PMI) registered at 50.2 in July, up from 49.2 in June and above the 50.0 no-change value for the first time since March. A slower fall in output and a rise in pre-production inventories were the main factors pushing the headline PMI into positive territory in July. Furthermore, employment numbers continue to rise, and output cost inflation eases to the lowest level since May 2013. However, the most important news from the U.S., making the Greenback reach a 27-month high, and weakening the Loonie, is the Fed’s "hawkish" rate cut. The Fed put cold water on dovish expectations, despite the Fed cutting rates after ten years. Market participants trading the U.S dollar got a reality check on the growth prospects of the Greenback against other world currencies. Chairman Jerome Powell reset expectations about the direction of U.S. monetary policy versus the rest of the world. He managed to give markets a thrill, even though the quarter-point cut he delivered was far from surprising. He discouraged market participants from betting on a longer-term easing cycle, saying the modest cut was meant to protect the economy's expansion in a time when uncertainty around trade policy has been, "more elevated than we anticipated," making the equity market fall and the U.S. dollar rise.
Key MoversThe GBP/USD pair trades at the 1.2100 handle at the time of this writing, representing a fall of almost 0.40 percent, and a 31-month low since January 2017. Despite an upgrade to growth and inflation forecasts, the Bank of England's latest announcement makes it clear that rates are likely to remain on hold for the foreseeable future. The initial BoE's forecasts were premised on Brexit going smoothly, but having the current evidence, it looks questionable, which should not be hawkish or supportive for a stronger Pound. The GBP/CAD trades at 1.6018 a fall of 0.1 percent.
- USD/CAD: 1.3195 - 1.3263 ▲
- EUR/CAD: 1.4542 - 1.4660 ▼
- GBP/CAD: 1.5965 - 1.6059 ▼
- AUD/CAD: 0.8969 - 0.9074 ▲
- NZD/CAD: 0.8629 - 0.8705 ▲