The Canadian dollar was the first currency to react to the seemingly balanced Fed decision, thus showing its vulnerability with USD/CAD rising above 1.25. The weakness now turned into a crash.
USD/CAD made a strong move upwards and hit yet another level last seen in 2009: 1.2680. Is the road to 1.30 clear? Here are the reasons for the fall:
- Stronger dollar in reaction to the Fed: It certainly took a long time for the markets to react, but eventually they found the words they needed: the assessment of the labor market was upgraded to “strong” from “solid” and the economy looks better than it did beforehand. And while the Fed is worried because of international developments, it isn’t too worried about a US slowdown. What do they know about the GDP release tomorrow?
- Falling oil prices: The usual culprit for a weaker loonie strikes again, with WTI under $44 once again. We are seeing pressure in the black gold after the stabilization. In any case, prices of Canada critical export are not going up.
- Downwards revision of Canadian jobs data: Canada gained only 121K jobs in 2014, around one third less than originally reported throughout the year. And also the unemployment rate is up to 6.7%. The initial publication only had a minor impact but this certainly weighs now.
- Ongoing rout from BOC cut: The Bank of Canada didn’t change interest rates since 2010, until the surprising rate cut last week. Even if this isn’t the beginning of a loosening cycle, the move still weighs heavily on the loonie, especially as the Fed is going in the opposite direction.
More: USD/CAD: Running Away; Buy Dips targeting 1.30 – CBA
Here is the chart:
Share
