Canadian Dollar Slides Ahead Of GDP Data

09/29/2022

1 minute read

2022.09.29 06:53

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MarketPulse

The Canadian dollar continues to show sharp volatility this week. has jumped 0.65% today and is trading at 1.3693. We are seeing significant in the currency markets this week, with a weaker risk appetite propelling the US dollar higher.

The Canadian dollar has been hit by the double whammy of an aggressive Federal Reserve and an escalation in the war in Ukraine, which has dampened risk appetite. It has been a miserable September for the Canadian dollar, as USD/CAD has climbed 4.5%.

There are additional headwinds for the Canadian dollar. The Bank of Canada has led the way with a fast pace of tightening, raising its benchmark rate to 3.25%.

The Federal Reserve has with last week’s 0.75% hike, and the markets are pricing in a higher terminal rate for the US than for Canada (4.60% vs. 4.10%).

This means that the Canadian dollar will not benefit from a higher interest rate differential, and Canadian bond yields have fallen below US Treasuries.

Canada is a major exporter, and the drop in oil price weighs on the Canadian dollar. We are already seeing a sharp drop in long positions in the Canadian dollar, and that trend could continue.

Markets Brace For A Decline In GDP

Canada releases the July report later today. The economy shows little movement and gained a negligible 0.1% in June.

The consensus for July is a decline of 0.1%. A sharper drop than expected could sour investors on the Canadian economy and extend the Canadian dollar’s losses.