CAD : Vulnerable

(Tue, 6 Oct 2020). USD/CAD appears to have reversed course following the failed attempt to test the August high (1.3451), and recent developments in the Relative Strength Index (RSI) cast a bearish outlook for the exchange rate as the indicator snaps the upward trend established in September.

USD/CAD RATE VULNERABLE FOLLOWING FAILED ATTEMPT TO TEST AUGUST HIGH

USD/CAD extends the decline from the start of the month as the US Dollar depreciate against most of its major counterparts, and the exchange rate may continue to give back the rebound from the September low (1.2994) as weakness in the Greenback coincides with the recovery in global equity prices.

The outlook for monetary policy may continue to shore up risk appetite as the Federal Reserve plans to “achieve inflation that averages 2 percent over time,” and the central bank may come under pressure to further insulate the economy asUS lawmakers struggle to agree on another fiscal stimulus package.

In turn, the FOMC may bring back ‘Operation Twist’ as Cleveland Fed President Loretta Mester, a 2020 voting-member on the Federal Open Market Committee (FOMC), states that the central bank could “shift to longer-term Treasuries, as we did during the Great Recession, if we needed more accommodation” during an interview with Bloomberg News.

The comments suggest the FOMC will continue to tweak its emergency measures to support the US economy as most Fed officials judged that “yield caps and targets would likely provide only modest benefits in the current environment,” and it seems as though Chairman Jerome Powell and Co. are in no rush to deploy more non-standard tools as the Summary of Economic Projections (SEP) show the longer run interest rate forecast unchanged from the June meeting.

As a result, the FOMC Minutes may highlight more of the same for the next interest rate decision on November 5, and key market trends look poised to persist as the tilt in retail sentiment carries into October, with traders net-long USD/CAD since mid-May.

With that said, the crowding behavior in USD/CAD looks poised to persist despite the failed attempt to test the August high (1.3451), and recent developments in the Relative Strength Index (RSI) cast a bearish outlook for the exchange rate as the indicator snaps the upward trend established in September.

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