USD/CAD Extends Gains After Fed Remarks on Aggressive Tightening Policy

Insights

• The dollar strengthened against other major currencies
• Benchmark yields retreated after surging the past few days
• Gold and silver prices rose due to inflation concerns and new sanctions on Russia
• Oil prices continue to fall following the release of more reserves

The dollar nearly hit a two-year high against a basket of currencies as the Fed made clear its aim to fight inflation through aggressively hiking interest rates. Benchmark yields fell a few basis points today after grinding higher as the Fed announced its plans to further tighten rates.

The 10-year yield reaches its highest level of 2.67 since March 2019 as investors digest the news of the Fed tightening policy. Gold and silver prices rose as fears about mounting inflation have generated strong demand for safe-haven assets. This situation counters guidance from the Fed about increasing interest rates. 

Jobless claims declined by 5,000 to 166,000 for the last week. The lowest since 1968, this number signals how much the labor market tightened last week. The Dow Jones estimate was 200,000. The numbers reflect that the labor market has been subject to a severe worker shortage. The surging demand for workers has driven up wages and led to spiraling inflation.

Technical Analysis

The USD/CAD climbs higher, hovering near a two-week high of 1.258. The strong gains come amid the Fed’s hawkish policy stance and falling oil prices. However, new sanctions on Russia will underpin the Loonie and might limit gains. Retreating yields might cap the strength of the dollar.

Overall, the Fed’s tightening favors USD bulls. Resistance is seen near the 10-day moving average near 1.265. Support is seen near yesterday’s lows near 1.243. Short-term momentum turned positive as the fast stochastic had a crossover buy signal.

The medium-term momentum is negative but has positive momentum despite that the MACD line generated a crossover sell signal. This scenario happens when the MACD line (the 12-day moving average minus the 26-day moving average) crosses the MACD signal line (the 9-day moving average of the MACD line).