In a historic, bold move, the United States central bank. This is the second time this year that they’ve announced a 25 basis point cut in borrowing costs. This decision reflects the bank’s concerns regarding a softening labor market, prompting analysts to closely monitor its implications for the economy. The Federal Reserve recently signaled its intention to stop shrinking its balance sheet by December. This action signals the conclusion of its quantitative tightening program.
Against this backdrop, the USD/CAD currency pair finds it increasingly difficult to stay afloat. Following a limited recovery from the 1.3890-1.3885 zone — its trough since September 25 — the pair now hovers under the mid-1.3900s. This horizontal trading range and its implication are important, as it corresponds nicely with USD/CAD’s 200-day Simple Moving Average (SMA). Unsurprisingly, this makes for an even more grim picture for traders.
Federal Reserve signaled a rate hike on Wednesday in much stronger hawkish hands. This decision, among other things, has contributed to a weaker dollar. Market participants are eagerly on the look-out for this week’s highly-anticipated meeting between U.S. President Trump and Chinese President Xi Jinping. Markets are sure to be primed for increased volatility in the wake of this meeting. Its possible effect on our trade relations and economic predictions is huge.
Meanwhile, crude oil prices remain low. That usually places downward pressure on the commodity-linked Canadian dollar, or Loonie. There’s one other major factor that seems to be providing the Loonie with some solid tailwind, offsetting the negative impact from lower oil prices. Traders are on the edges of their seats. The currency pair’s trajectory might be determined by the Fed’s own policy moves and outcomes of important diplomatic negotiations.
As the Federal Reserve continues its way through headwinds of economic challenges, its actions in recent times have gone under the microscope by investors and analysts like. The rate cut that came on Wednesday to lower interest rates for the second time this year is no small thing. This decision is intended to spur further economic development in the face of numerous unknowns, especially in the job markets.
The Fed’s decision to stop reducing its balance sheet is an important inflection point in its monetary policy strategy. The end of QT is a recognition that the Fed is prepared to adjust as economic conditions evolve. No matter where you live, this strategic move is intended to prop up the emerging and stagnating labor market. Such a proactive approach could help shape market expectations, especially as investors recalibrate what they expect to happen with rates in the future.
The USD/CAD exchange rate is still vulnerable to external influences. Traders are giddy with anticipation that Trump and Xi will meet soon to hash out their differences. The risks it introduces even have observers speculating about what it will do to U.S.-China relations, and the broader market.