The US dollar closed higher versus the Canadian dollar on Tuesday. The pair rallied 0.3% to close at 1.3092, snapping a two-day winning streak. The US dollar Canadian dollar exchange rate continues to hover at levels last seen in July.
After a relatively quiet start to the week for the US dollar, volatility could pick up today. Investors will be looking to US GDP data, followed by the Federal Reserve monetary policy announcement later.
Before the Fed rate decision investors will first get a sense of the rate of economic growth in the US. The US economy is slowing, but by how much? Analysts are expecting US third quarter GDP to be 1.6%, down from 2%. With the exception of the fourth quarter 2018, the US quarterly GDP growth hasn’t been below 2% for more than three years. A weak reading could drag on the US dollar.
Market participants broadly expect the Fed to cut interest rates by 0.25%. This will be the third interest rate cut since July. With investors almost certain that he Fed will cut, the focus will fall onto what the Federal Reserve intends to do next. Will the Fed indicate that they could cut interest rates again? Or will Federal Reserve Chairman Jerome Powell and Co decide that 3 insurance cuts are sufficient in this current cutting cycle? Any hints of further cuts could pull the dollar lower.
BoC To Keep Rate On Hold (Again)
The Bank of Canada will also make its monetary policy announcement today. The central bank is broadly expected to keep rates on hold at 1.75%. By doing so they will be separating itself further from other central banks across the globe, which are cutting rates.
Economic indicators for Canada remain stable, the labour market strong and inflation continues slightly above target, giving the BoC no reason to cut interest rates. The central bank will have kept rates on hold for a year, even as other major central banks such as the Fed, the ECB have cut rates. As a result, the Canadian dollar is looking more attractive to investors than the other currencies.
