Canadian Dollar presents battle as USD shows weakness after mid ...
The USD/CAD pair trades neutrally on Wednesday near 1.3915. The Canadian Dollar is gaining some ground against its US counterpart despite mixed economic data from the US. Softer Gross Domestic Product (GDP) growth than expected from Q3 and a strong ADP Employment Change report for October are moving the markets in Wednesday’s session.
However, Tuesday’s declining JOLTS Job Openings and expectations of a Federal Reserve (Fed) rate cut have weighed on the US Dollar. The release of the PCE Prices Index and Nonfarm Payrolls (NFP) report later this week is expected to provide further direction to the USD/CAD pair amidst ongoing market volatility.
Daily digest market movers: Canadian Dollar on neutral ground after US data Strong October ADP employment data (233K vs. 115K expected) strengthens the US Dollar against the Canadian Dollar. Q3 US GDP growth of 2.8% falls short of expectations but remains robust in the context of a global economic slowdown. The market had expected 3.0%. JOLTS report on Tuesday showed a decline in job openings in September, raising concerns about the labor market and pressuring the US Dollar. Futures markets now fully price in a 25 bps interest rate cut by the Fed next week with chances of a further cut in December easing. Personal Consumption Expenditures (PCE) Prices Index expected to show continued easing of price pressures on Thursday. NFP report on Friday expected to show a significant decline in new payrolls, potentially weighing on the US Dollar. Bloomberg consensus for October NFP is 110K vs. September's 254K and a whisper number of 127k. CAD/USD technical outlook: Bullish momentum remains, strong resistance at 1.3920The Loonie’s Relative Strength Index (RSI) is in the deep overbought area at a value of 75 with a mildly declining slope, suggesting that buying pressure is easing. Also, the Moving Average Convergence Divergence (MACD) is flat and green, suggesting that buying pressure is at least neutral.
Buyers will potentially take a breather in the next session and use the 1.3900 support to consolidate the Aussie trade in the next few sessions.
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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