The U.S. dollar fell against the Canadian dollar today, touching the 1.3680 level, as market sentiment shifted regarding the likelihood of further interest ratehikes by the Federal Reserve. Analysts attribute the softer stance on the U.S. dollar to a combination of factors, including recent economic indicators and market expectations.
The recent release of the University of Michigan’s consumer sentiment index pointed to higher inflation expectations among consumers, which would normally support a stronger dollar in anticipation of more aggressive monetary policy. However, this was offset by other economic reports that pointed to a potential slowdown.
On Friday, revised inflation perceptions were evident as U.S. Treasury yields rose. However, despite these gains, U.S. durable goods orders fell sharply, while jobless claims fell to 209,000 just before the Thanksgiving holiday when markets were closed. The lower number of jobless claims could be seen as a positive sign for the labor market; however, it did not seem to bolster the case for further rate hikes.
Adding to the complexity is the Canadian economic landscape. While the Canadian Dollar found some support from these broader market moves, its gains were capped by falling oil prices. West Texas Intermediate (WTI) crude oil prices fell amid uncertainty surrounding an OPEC+ meeting, which can have a significant impact on resource-linked currencies such as the Canadian dollar.
Investors are now turning their attention to upcoming economic data for further direction. Canada’s Retail Sales figures are being eagerly awaited, and could have an impact on the strength of the CAD. Meanwhile, in the United States, the post-Thanksgiving S&P Global PMI numbers will be closely watched to gauge the level of business activity and the health of the economy.
As global markets adjust to these mixed signals, traders remain cautious. The interplay between commodity prices such as oil and shifting monetary policy expectations continues to create a complex trading environment for currency pairs such as the USD/CAD.