The Canadian dollar made a big retreat against the US dollar after the Federal Reserve didn’t deliver extreme monetary stimulus.
The market was looking for more than Operation Twist in order to boost “commodity currencies” such as the loonie. When will it go from here? Update.
USD/CAD is now trading at around 1.0120. It already crossed the parity line twice in recent months, but only the action and especially the inaction by the Fed cleared the road for a surge above this line. This is the highest level in 2011. These levels were last seen in December 2010.
What Bernanke did and didn’t do
The Federal Reserve did what it had communicated to do, but nothing more. Bernanke decided to sell short term bonds (under 3 years) and to buy long term bonds (6 to 30 years) in order to flatten the yield curve and to stimulate lending, especially in the troubled housing sector. The program is in a scale of $400 billion.
The market had expected more creative steps and perhaps hints about a third round of quantitative easing – QE3. QE2 gave a boost to commodities such as oil which Canada exports and also pushed higher “risky” currencies to which the Canadian dollar belongs.
The FOMC Statement also included a worrying outlook for the economy. The Canadian economy is very dependent on the American one.
USD/CAD Levels
After crossing the parity line, USD/CAD easily skipped over the first resistance line – 1.0060. It did halt at the next one – 1.0140. This was a peak in December 2010.
The next resistance line is 1.02, which was the bottom back in 2009. It’s followed by 1.0280 and 1.0370. Support is now at 1.0060 followed by USD/CAD parity.
For more levels and events, see the USD/CAD forecast.
Canadian retail sales will impact the pair, as well as more news from the US.
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