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The Canadian dollar is losing ground once again, and flirting with parity against the greenback. The move comes ahead of the all important FOMC decision later on. Is the market expecting a disappointment from Bernanke?

Bernanke and his colleagues at the US central bank are expected to announce new measures of monetary stimulus in order to boost the US economy.

If they don’t deliver something strong, the disappointment will lead to a stronger US dollar.  The Canadian economy is highly dependent on the US economy. Higher US demand is necessary for Canada.

What will Bernanke offer? Here are 7 scenarios for the Fed decision.

The move towards parity comes despite rising inflation in Canada. The Consumer Price Index (CPI) rose by 0.3% (exp. +0.1%) and Core CPI jumped by 0.4%. Also here, a rise of only 0.1% was forecasted.

This higher than expected inflation lowers the chance for a rate cut in Canada in the near future, although this option is still with us. The current rate is 1%.

If parity is conquered, the next line of resistance is 1.0060, followed by 1.0140 and 1.02. Support is found at 0.9977 and 0.9915. For more about the loonie, see the Canadian dollar forecast.

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