The USD/CAD pair has been unique when compared to other major currency pairs. The price has not moved in favor of a longer term US Dollar trend over the past 3 months as we’ve seen with the Euro, Pound and Yen. Instead, the exchange rate has been in a constant clash with price gains from one currency, being followed by a correction.
Overall, the US Dollar has seen most of the gains but the Canadian Dollar has performed better than its counterparts. Over the past 14 days, the USD/CAD price has increased by almost 3.5% and over 400 PIPs. However, the exchange rate has remained within the larger price range for now.
The US Dollar had gained momentum against the Canadian Dollar partially due to the hawkish alterations put in place by the Federal Reserve, but also due to the declining performance of the Canadian economy. According to experts, Canada is running a higher risk of witnessing a recession - something which can also be seen in its economic releases from last week.
Towards the end of last week, the Canadian Real Estate Association (CREA) noted that the number of homes sold fell by 20% in May compared to the same period in 2021. The House Price Index lost 0.8% in a month after falling 1.1% in April, but it is still more than 19% higher than last year, mainly due to the impressive growth seen at the end of 2021. The association also noted that the country was more strongly affected by COVID-19 as it took stricter measures than their partners in the US.
Today, market participants are anticipating the release of the monthly retail sales figures and the latest Consumer Price Index. The CPI figure is predicted to increase by 1% compared to 0.6% the previous month. Traders appear to be keen to see if the number of sales remains high with the inflation level increasing above 7%, or if higher prices have indeed affected consumer appetite.
In addition to the economic releases for Canada, the market will also be closely watching the Fed’s testimony in the US, scheduled for Wednesday and Thursday. It is predicted that the Chairman will almost certainly comment on the level of inflation and future interest rate hikes. So far, Mr. Powell has advised that a 50 or 75 basis point increase is on the table.
Even though the price movement has strongly been in favor of the US Dollar, the asset has declined this morning by 0.45%. Currently, the decline is merely forming a retracement in the longer-term bullish trend, however, traders will be monitoring the price movement closely over the next 2 days with the new releases.
It should also be noted that the retracement in the US Dollar can be seen in all major pairs this morning and the US Dollar Index has declined to 104.39. The Canadian Dollar on the other hand is witnessing mixed movements depending on the pair.
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