USD/CAD Rate Rebound Unravels Following Test Of 50-Day SMA

USD/CAD struggles to retain the advance following the US Retail Sales report even though longer-dated Treasury yields hold above pre-pandemic levels, and the exchange rate may consolidate over the remainder of the week as the Federal Open Market Committee (FOMC) Minutes highlight a wait-and-see approach for monetary policy.

The transcript from the January meeting suggests the FOMC will rely on its current tools to support the US economy as “all participants supported maintaining the Committee's current settings and outcome-based guidance for the federal funds rate and the pace of asset purchases,” and it seems as though the central bank will stick to the same script at its next interest rate decision on March 17 as “the Committee's guidance for asset purchases indicated that asset purchases would continue at least at the current pace until substantial further progress toward its employment and inflation goals had been achieved.”

It remains to be seen if the FOMC will alter the forward guidance later this year as “some participants pointed to the possibility that fiscal policy could turn out to be more expansionary than anticipated,” with Chairman Jerome Powell and Co. going onto say that “participants remarked that the prospect of an effective vaccine program, the recently enacted fiscal support, and the potential for additional fiscal actions had led them to judge that the medium-term outlook had improved.”

Until then, key market themes may continue to influence USD/CAD as the US Dollar still reflects an inverse relationship with investor confidence, and the tilt in retail sentiment also looks poised to persist as traders have been net-long the pair since May 2020.

Image of IG Client Sentiment for USD/CAD rate

The IG Client Sentiment Report shows 64.98% of traders are still net-long USD/CAD, with the ratio of traders long to short standing at 1.86 to 1.

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