USD/CAD Rate Continues To Trade In Defined Range Ahead Of FOMC Minutes

USD/CAD continues to trade within a defined range following the Group of 20 (G20) Summit as virtual meeting offered little information regarding the monetary policy outlook, and it remains to be seen if the FOMC Minutes will trigger a market reaction as the central bank appears to be on track to retain the current policy at its last meeting for 2020.

The Fed Minutes may largely reinforce a dovish forward guidance as Chairman Jerome Powell and Co. are “committed to using our full range of tools to support the economy,” but the threat of a protracted recovery may push the central bank to provide additional monetary stimulus as Dallas Fed President Robert Kaplan, a 2020-voting member on the FOMC, warns that the economic rebound is “decelerating” during a joint conference with the Kansas City Fed.

Kaplan goes onto say that “the last part of the fourth quarter, and certainly the first quarter, are going to be very challenging” as Fed officials prepare to update the Summary of Economic Projections (SEP), and the FOMC may offer a more detailed forward guidance at its next interest rate decision on December 16 as Treasury Secretary Steven Mnuchin lays out plans to wind down the emergency lending facilities.

However, the FOMC may rely on its current tools to support the US economy as Chairman Powell and Co. vow to “increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace,” and the US Dollar may continue to reflect an inverse relationship with investor confidence as key market trends look poised to persist throughout the remainder of year.

Image of IG Client Sentiment for USD/CAD rate

At the same time, the tilt in retail sentiment may also carry into the end of 2020 as retail traders have been net-long USD/CAD since mid-May, with the IG Client Sentiment report showing 72.26% of traders currently net-long the pair as the ratio of traders long to short stands at 2.60 to 1.

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