The Canadian Dollar (CAD) has been losing ground against the US Dollar in recent trading sessions, with investors taking a risk-off stance at the beginning of the week. This has led to the CAD sliding to three-week lows against the Greenback. Significant economic data from Canada is scarce this week, with the next notable release being Canadian labor data on Friday. While Canadian Trade Balance figures are due on Tuesday, they are not expected to have a significant impact on the market.
Market sentiment has shifted towards risk-off, which has negatively impacted the CAD. The pace of rate cuts that were anticipated earlier in the year has been revised lower, with the US labor market remaining strong. The Federal Reserve (Fed) has also been cautious about further rate cuts, with bets of no rate change in November increasing. Federal Reserve Bank of Minneapolis President Neel Kashkari has mentioned that the risks are leaning towards higher unemployment.
In terms of the USD/CAD price forecast, the pair is currently trading around 1.36245, having recently bounced from the 1.3500 level. The break above the 200-day Exponential Moving Average (EMA) suggests a possible shift in trend direction, with the 50-day EMA also supporting a bullish outlook. The MACD histogram indicates a bullish shift, with a potential continuation of upward momentum expected, although the pair is approaching resistance near the 1.3650 level.
The Federal Reserve plays a crucial role in shaping monetary policy in the US, with its two mandates being achieving price stability and fostering full employment. Interest rates are adjusted by the Fed to achieve these mandates, and its primary tool is to adjust interest rates. The Federal Open Market Committee (FOMC) holds eight policy meetings a year, where monetary policy decisions are made based on economic conditions by twelve Fed officials. In extreme situations, the Fed may resort to Quantitative Easing (QE) to increase credit flow in the financial system.
Quantitative easing (QE) is used during crises or when inflation is extremely low, involving the Fed printing more Dollars to buy high-grade bonds from financial institutions. This measure weakens the US Dollar. On the other hand, Quantitative Tightening (QT) is the reverse process of QE, where the Fed stops buying bonds and does not reinvest the principal from maturing bonds, which is usually positive for the value of the US Dollar. Overall, the outlook for the CAD remains uncertain, with market sentiment and economic data playing crucial roles in its movements.
