The US dollar is primed to continue to ease lower in valuation opposite its Canadian counterpart as currency traders appear to be intent to take on risk. With investors in anticipation of central bank policy directives from the US Federal Reserve and the European Central Bank, the demand for higher-yielding assets has been on an increase. It can actually be said that the Canadian currency has been benefiting from speculations of policy action by foreign central banks.
“Everyone is looking at what’s going on with the Fed and the ECB this week,” Charles St-Arnaud, an economist in New York at Nomura Holdings Inc., said in an interview. “We’ve had a good run of appreciation in the Canadian dollar. Most of it is on the expectation that you’ll have some form of easing from the ECB or the Fed. If either of those two central banks disappoint this week, Dollar-Canada could jump higher on that.”
Indeed, the rise in demand for the Loonie currency has been a result of optimism that the Fed or the ECB will take action to spur economic growth. ECB chief Mario Draghi pledged last week to do everything necessary to protect the Euro Zone. Meanwhile, Fed’s Bernanke has repeatedly implied that the central bank has policy tools at its disposal should the need call for it.
Wall Street is braced for another round of Fed bond purchases, and some see an off chance that it could even come this afternoon. Yet, analysts believe policymakers will wait until at least September, giving them more time to lay out the case for their preferred method for easing policy in speeches between now and then.
Fed officials will hint at their intent to deliver further stimulus in part through what most analysts envision as a substantially weaker outlook on the US economy than that delivered in June. Even such a verbal stimulus is seen to sustain the rally for risk assets.
Likewise, seen to aid the plight of the Loonie today is the release of the ISM Manufacturing PMI for July. The US manufacturing index declined to 49.7 points in June, signaling contraction. A return to expansion, albeit slightly, is forecast by economists with the 50.3 estimate. With investor activity seen benefiting riskier assets, losses are projected for the Greenback today. A sell position is deemed for the USDCAD exchanges.
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