USD/CAD hit a new monthly-low of 1.3132, and the pair might continue its slide to the January low of 1.2957; an earlier attempt to break below the January’s bottom in August wasn’t successful, but it might be an exhaustion of the prevailing trend rather than a change in direction.
Meanwhile, Bank of Canada Senior Deputy Governor Carolyn Wilkins spoke about “the limits of monetary policy to solving all problems.” The official added that it is not well equipped to solve sector-specific issues compared to many other policies which are quite successful in dealing with sectorial problems.
The market read the comments as a hint of continued reliance on the current monetary path followed by the Canadian central bank. Wilkins subsequent comments reinforced the market view as she said that the central banks would struggle to revive growth without the conventional firepower – if we see an economic downturn in a low-interest world.
The indications are that the Governor Tiff Macklem and team are not in a hurry to change the current policy framework: entailing a large-scale asset purchase program at a pace of at least $5 billion per week.
The next meeting on September 9 might continue the current policy as Deputy Governor Lawrence Schembri asserts that the extraordinary policy actions were for attaining the inflation target by supporting employment and demand during the protracted economic recovery.
The USD/CAD might continue to shed the gains from the start of the current year as the present market-theme is likely to persist through September.
Market participants will be watching the Federal Reserve Economic Symposium for clues as the FOMC considers an outcome-based approach rather than calendar-based forward guidance. The symposium might not give any surprise regarding the next interest rate decision on September 16. The US central bank had earlier decided to extend its lending facilities through the end of the year, and the committee had voted to stretch US Dollar liquidity swap lines through March 31, 2021.
