Ketki Saxena
Investing.com – It weakened against its U.S. counterpart today on risk-averse sentiment following earnings disappointments at Microsoft (NASDAQ:) and Alphabet (NASDAQ:) and a less dovish Fed decision.
The US Federal Reserve’s rate decision was the main driver of action for USDCAD today, overshadowing better-than-expected Canadian GDP data. .
The Federal Reserve conducted base rate stable in the range of 5.25% to 5.50%, as expected.
However, in his monetary policy statement, he signaled that he would not cut rates “until he has greater confidence that inflation is sustainably approaching 2%”, fueling risk aversion and helping to lift the US dollar.
Probability of rate cut in March fallen to about 55% after the announcement – up from nearly 80% expectations for rate cuts in March, which peaked earlier in the month.
Meanwhile, Canadian November came in at 0.2% month-on-month versus the 0.1% forecast. Early estimates call for annual growth of 1.2% in the fourth quarter, helping the Canadian economy avoid a technical recession in the second half of 2023.
However, Monex Canada analysts note that today’s surprise belies further weakening of the Canadian economy.
They write that “any expansion was likely modest, and forward-looking indicators suggest this strength should fade in the coming months.”
“The output gap will remain negative and should continue to weigh on inflation, which we believe keeps the Bank of Canada on track to cut rates in April.”
Looking ahead to the Monex pair, Canadian analysts “continue to expect USDCAD to trade higher as underlying weakness in economic growth becomes apparent again… as a result, Canadian dollar strength is likely to prove temporary.”