Canadian Dollar Update July 19, 2019 – Canadian Dollar Rangebound
USD/CAD Open: 1.3069-1.3070 Overnight Range: 1.3016-1.3110
Oil is at $55.50 and gold is at $1,441. US markets are higher today.
The short-term USD/CAD technicals are neutral-bearish. For today, USD resistance is at 1.3117. Support is at 1.3030.
The Canadian dollar continues to see-saw inside a USDCAD range of 1.3020-1.3090. It has tested both sides of that band in the past few days but was unable to break out. The currency is supported by monetary policy divergence between the US Fed and the Bank of Canada The BoC is neutral. Governor Poloz said the economy was performing as expected but was cognizant of downside risks.
Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) signaled that US interest rates would be cut by 0.25% at the July 31 meeting. The FOMC’s dot-plot interest rate forecast projected two rate cuts in 2019. Yesterday, New York Fed President James Bullard appeared to suggest that a 0.50% rate cut was warranted at the next meeting.
Mr. Bullard disputed the notion that it was necessary to keep rates elevated in order that they could be slashed in the event of a crisis. He advocated acting quickly at the first sign of economic distress. He said it’s better to take preventative measures than to wait for disaster to unfold.
FX markets took Mr. Bullard’s remarks to heart. The US dollar was sold against all the G-10 majors in anticipation of a deeper rate cut than expected. The odds of a 0.50% rate cut at month-end rose to 45.2% from 38.6%, according to the CME.
US Treasury yields sank, and USDJPY plunged, falling from 107.98 yesterday morning to 107.23 where it opened in Asia. EURUSD soared to 1.1280 from 1.1206 during the same period. The Canadian dollar rallied as well.
Apparently, financial markets misunderstood Mr. Bullard’s comments. A spokesman for the New York Fed said Mr. Bullard’s remarks did not have anything to do with the upcoming FOMC meeting. Instead, “this was an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting”.
The bulk of the US dollar sell-off was unwound in Asia and Europe overnight.
The Canadian dollar opened the Toronto trading session in the middle of its recent range. Traders are awaiting today’s Canadian May Retail Sales data. The Michigan Consumer sentiment Index is the only US data on tap.
Today’s Suggested Range USD/CAD: 1.3020 – 1.3120
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