USD/CAD: Loonie Maintains Range Play as Investors Eye Fed Chair Announcement

The Canadian dollar largely remained range-bound in lacklustre trade against its U.S. counterpart on Monday as investors await US President Biden’s decision on who will chair the U.S. Federal Reserve before the Thanksgiving holiday.

Today, the USD/CAD pair traded in a range of 1.2623- 1.2658. After gaining about 2.3% last month, the Canadian dollar weakened by nearly 2% so far this month.

As President Joe Biden nears a decision on whether to keep Jerome Powell as Fed chair for another term or if Lael Brainard should be promoted to the post. That raised uncertainties among investors over Fed future policy. He is expected to announce his decision by Thanksgiving. The Fed meets again December 14-15.

“Given the possibility that more virus lockdowns are announced in the coming days and weeks, risk-sensitive currencies like the CAD may trade on the defensive while declining oil prices exert an additional drag. The release of the FOMC’s meeting minutes on Wednesday may see some reaction in the broad USD tone as it informs 2022 rate hike expectations as well as a decision by Pres Biden on who will lead the Fed next year (though we don’t expect much difference between Powell and Brainard, both tilt dovish). US Thanksgiving on Thursday will nevertheless see limited activity in markets amid thin volumes,” noted Shaun Osborne, Chief FX Strategist at Scotiabank.

“While CAD fundamentals are positive, technical factors are aligned for further losses ahead. USDCAD found some resistance in the mid-1.26s zone reached this morning with solid support in the upper 1.25s/low 1.26s that will likely see the dollar bought on dips, for the moment at least. The 1.27 zone stands as next resistance as the 61.8% Fib retracement of the Aug-Oct move.”

The dollar index, which measures the value of the dollar against six foreign currencies, was trading 0.06% higher at 96.085 – not far from the 16-month high of 96.266 hit last week. The greenback rose to 16-month highs against most other major currencies because of the hottest U.S. inflation reading in a generation that pushed investors to bet that interest rates are likely to rise sooner than previously thought.

It is highly likely that the world’s dominant reserve currency, the USD, will rise by end of the year, largely due to the expectation of at least one rate hike next year. With the dollar strengthening and a possibility that the Federal Reserve will raise interest rates earlier than expected, the USD/CAD pair may experience a rise.

Canada is the world’s fourth-largest exporter of oil, which edged lower on rising concerns that increasing OCID-19 cases in Europe could threaten the economic economy. At the time of writing, U.S. West Texas Intermediate (WTI) crude was trading 0.17% lower at $75.8 a barrel. Lower oil prices lead to lower U.S. dollar earnings for Canadian exporters, resulting in a decreased value of the loonie.