This week, there has been no shortage of negative economic news and renewed worries about the stability of the US regional banking sector, primarily due to the First Republic Bank, which looks like it will be taken over by regulators. In the good old days of a predictable FX market, this would have led to a safe-haven rally for the US dollar, causing the Canadian dollar to drop in value.
So, why no US dollar rally against the Canadian dollar this time? Two things: Firstly and most importantly, the Fed is expected to pause its interest-hiking campaign after next week’s meeting, where an increase of 25bps is widely anticipated. This means that the interest rate differential between the US dollar and the Canadian dollar will not continue to increase. Secondly, the broad weakness in oil prices has prevented the Canadian dollar from taking advantage of the US dollar weakness.
Now, with FX markets being the fickle markets that they are, today’s large slew of economic data may cause some choppiness in the USD/CAD exchange rate. As we have said all week, US dollar sellers will do well at 1.36 or above (USD/CAD), while US dollar buyers may benefit from showing some patience.
The Canadian Dollar is currently trading at 1.3597 against the US dollar.