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USD/CAD May Fall to 1.3250 as Fed Confirms Disinflationary Process
A weakening USD Index should push USD/CAD down to roughly 1.3250. The Fed affirmed US disinflation. Crude prices fell after US EIA reported a higher-than-expected oil inventory buildup.
After falling below 1.3270 in Asia, the USD/CAD pair has resumed its two-day losing streak. After two days of softer US inflation, the Loonie plummeted on Wednesday.
The US Manufacturing PMI (Jan) fell for a third month to 47.4, below the consensus of 48.0 and the previous release of 48.4. The Manufacturing New Orders Index, which measures forward demand, fell to 42.5 from 46.1 and 45.1. In his commentary, Fed head Jerome Powell noted that consumer spending has slowed substantially and that the central bank will now focus on labor cost balance. US Employment Cost Index (Q4) decreased to 1%.
The US Consumer Price Index (CPI) and Producer Price Index (PPI) have fallen for three months, while economic activity and consumer spending have slowed, indicating disinflation. Powell stated, “Can now claim for the first time ‘Disinflationary process has started.'”
Market participants' risk appetite has increased risky asset demand. After a strong Wednesday, S&P500 futures rose in Asian morning. After a drop to roughly 100.80 amid risk-on market sentiment, the US Dollar Index (DXY) detected barriers. 10-year US Treasury yields have risen beyond 3.41%.
Monthly GDP (Nov) figures for the Loonie was 0.1%, surpassing the street's expectation of flat. Since the Bank of Canada (BoC) halted policy tightening after raising interest rates to 4.50%, Canadian GDP has not contracted monthly.
After falling to almost $76.00, oil is recovering. After the US Energy Information Administration (EIA) reported 4.14M oil inventories for the week ending January 27, black gold fell on Wednesday. Lower oil prices affect the Canadian Dollar because Canada is a major oil exporter to the US.
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