- Federal Reserve’s dovish tilted November minutes weighed on the US Dollar and bolstered the Canadian Dollar.
- US S&P Global PMIs dived into a recessionary territory, meaning that the US economy is decelerating fast.
- USD/CAD Price Analysis: Downward biased, eyeing the head-and-shoulders target at 1.3030.
The Canadian Dollar (CAD) continued its advance against the US Dollar (USD), courtesy of several factors, principally the US Federal Reserve (Fed) minutes perceived as slightly dovish, with the board ready to slow the pace of rate hikes. That, alongside a gloomy economic outlook in the United States (US) with PMIs entering the recessionary territory, weighed on the USD. At the time of writing, the USD/CAD is trading at 1.3338, below its opening price by 0.17%
US Dollar remains soft on Fed officials ready to moderate hikes
Sentiment remains upbeat, amidst low volume trading conditions, on the observance of the Thanksgiving holiday in the US. On Wednesday, the Federal Reserve Open Market Committee (FOMC), revealed November’s minutes, which expressed that “A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” giving the green light to investors seeking riskier assets. Nevertheless, traders should be aware that policymakers expressed “uncertainty” about how high rates need to go and would be data-dependent.
The same minutes reported that recessionary risks have increased, with odds at a 50% chance that the US economy would tap into a recession, as officials acknowledged that growth risks are skewed to the downside.
Aside from this, a slew of mixed economic data from the United States on Wednesday witnessed the S&P Global PMIs Manufacturing, Services, and Composite Indices for November entered the recessionary territory. Later, the University of Michigan (UOM) Consumer Sentiment remained positive at 56.9, below the preliminary reading but above estimates. Inflation expectations were mainly unchanged.
Earlier, the Initial Jobless Claims for the last week exceeded estimates, showing that the labor market is easing. At the same time, US Durable Good Orders beat forecasts, signaling consumers’ resilience amidst a period of high inflation and higher borrowing costs.
Meanwhile, the US Dollar Index (DXY), a gauge of the buck’s value against a basket of peers, is down b 0.23%, at 105.857, closing to the 200-day Exponential Moving Average (EMA) at 105.272. If the 200-day EMA is broken, that will exacerbate a test of the 100.000 figure.
Shifting our focus towards Canada, Bank of Canada (BoC) Governor Tiff Macklem appeared at the parliament, testifying on the October Monetary Policy Report. Macklem did not comment on anything new. He stressed the need to balance the risk of over and under-tightening. He said that they expect rates to rise further and added that inflation in Canada remains high and broadening, reflecting increases in goods and services prices
USD/CAD Price Analysis: Technical outlook
The USD/CAD resumed its downtrend after testing the head-and-shoulders neckline on Monday, though failure to crack it kept the chart pattern in play. The aftermath of the November Fed minutes release left the USD/CAD trading below 1.3400. Nevertheless, the lack of liquidity due to the US holidays kept the USD/CAD trading sideways. However, the USD/CAD path of least resistance is downwards.
Therefore, the USD/CAD first support is 1.3300. The break below will expose the 100-day Exponential Moving Average (EMA) at 1.3264, followed by 1.3200.