The Canadian dollar surged to less than 1.2500 against the dollar and traded near a session low of 1.24396, erasing all of gains in the dollar a day ahead. It became the best performer among major currencies amid the release of better-than-expected economic growth.
Canada’s economy accelerated at a 4.5 percent pace beyond expectation in the second quarter, which tops among Group of Seven countries, and was driven by the biggest binge in household spending since before the 2008-2009 recession. The quarterly GDP growth was the fastest in six years and surpassed the forecast of 3.7 percent from economists.
The staggering economic growth is boosting the chances that the BOC (Bank of Canada) will continue raising interest rates this year, after raising its benchmark rate to 0.75 percent from 0.5 percent on July for the first time in 7 years, which might be considered as a new era into a tightening cycle by speculators. BOC’s rate hikes odds on September increased from 25 percent to 40 percent, as the nation’s economy seems near full capacity in the strongest growth spurt in more than a decade.
The loonie, as the commodity-sentitive currency, is also driven by crude oil’s significant gains in near two months, because oil industry plays an essential role in its economy in the whole and its price will have a great impact on the currency.
The U.S dollar index has suffered its losses since early this year and the market is waiting for the upcoming important data to keep track on the following movement on U.S. economy.
Earlier, PCE data showed August core inflation at 1.4% y/y. The weak performance of inflation could be a reason for the dollar’s value loss. However, Steven Mnuchin, the U.S. Treasury Secretary, said that while the short-term direction of the dollar doesn’t concern him, a weaker dollar is “somewhat better” for U.S. trade.
The USD slide on Mnuchin’s comments was also driven by concern that tax reform could involve an outright tax cut, says Greg Anderson, head of FX strategy at Bank of Montreal; “The market views a deficit-neutral tax reform as USD-positive but an outright tax cut would be interpreted by global FX markets as irresponsible and USD-negative”
Wednesday’s USD surge was mainly contributed by the increasing consumer confidence and better-than-expected economic growth released on the same day, set to be 3.0 percent growth.
The Canadian dollar is currently trading lower, and approaching the session low on Aug. 29. Technically USD/CAD will find supports right below on the Aug. 29’s low of 1.24396, and on the July 27’s low of 1.24131, with decreasing Relative Strength Index of 38.4781 as of 2:35 p.m. in Sydney.
In the event that USD/CAD fails to be supported by the session low and successfully breaks out, further loss may be seen for short investors; otherwise, it more likely reverse to find self-correction close to 20-day moving average.
Chart 1: USDCAD Daily
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