USD/CAD – Canadian Dollar Under Pressure into FOMC Minutes

The Canadian dollar dropped in Asia but clawed back most of the losses during the European session. Trading was erratic but lacked conviction. USD/CAD climbed to $1.2616 from $1.2565 and is trading in Toronto at $1.2590. The gain is due to broad U.S. dollar demand ahead of the Federal Open Market Committee minutes from March 17. Traders are concerned that the minutes may reveal a somewhat hawkish bias to Committee member views, in contrast to Federal Reserve Chair Jerome Powell’s dovish outlook.

The Summary of Projections released alongside the March 17 FOMC statement raised Gross Domestic Product growth forecasts. Four members penciled in a 25-basis-point rate hike in 2022, Powell insists that any rate hikes are “a long way off.””

He said he was concerned about the high unemployment rate and didn’t believe the unemployment rate accurately reflected the level of unemployment.

A series of Fed speakers since the March 17 repeated that the Fed would allow inflation to “run hot,” saying they were comfortable with a Consumer Price Index above 2.0%

The International Monetary Fund (IMF) released its World Economic Outlook.

It upgraded the global growth forecast to 6.0%. It also raised U.S. growth to 6.4% from 5.1%, citing the strong policy response to the pandemic. Canada’s GDP forecast increased to 5.0% from 3.4% in January.

FX markets ignored the IMF news.

EUR/USD climbed from $1.1865 to $1.1894 with prices underpinned by better than expected final readings for March Composite and Services Purchasing Managers Index data. The topside may be capped if analysts determine that the FOMC minutes are more hawkish than expected. EUR/USD is in a mild uptrend above $1.1850.

GBPUSD dropped then rallied inside a $1.3774-$1.3838 band. The final reading of March Composite PMI was a tad weaker than forecast at 56.3, but traders ignored the result as they were still a seven-month peak. The U.K. government’s plans to lift coronavirus restrictions and bullish intraday technicals are supporting prices.

AUD/USD and NZD/USD were under pressure from broad U.S. dollar demand as traders jockeyed for position ahead of the FOMC minutes.

Canada’s Merchandise Trade surplus is expected to narrow to $1.0 billion

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians

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