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Barrons - Canadian Dollar at Near 5-Month Low on Fed Rate Expectations
Tuesday, 09 September 2014
OTTAWA--The Canadian dollar is trading at a near five-month low early Tuesday, driven down by broad strength in the greenback amid expectations that the U.S. Federal Reserve would sound less dovish in next week's policy statement and rate hikes are potentially nearer than markets had been anticipating.
The U.S. dollar has pierced the key C$1.1000 barrier and is trading at C$1.1025, the highest level since April 29, up from C$1.0973 at Monday's close, according to data provider CQG.
A study published by the San Francisco Fed Monday that concluded investors seem to expect more accommodative monetary policy than suggested by the Fed's economic projections in June "has people rethinking things," and has created nervousness ahead of the U.S. central bank's policy statement next week," said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets.
"The clock is definitely ticking down on the Fed and when that first rate rise is coming," he said.
Mr. Chandler said the risk aversion sparked by uncertainty over Scotland's independence vote next week in the previous session "is not fully on the front-burner right now."
Slightly weaker-than-expected Canadian housing starts data released Tuesday is "nothing worrisome" and the housing market still probably has more "froth" than the Bank of Canada had been expecting, he said.
Housing starts fell 3.7% to an annualized 192,368, a bit less than the 195,000 expected by analysts polled by The Wall Street Journal.
Many investors now expect the Canadian central bank to lag the Fed in hiking rates. The fact that the Bank of Canada's benchmark overnight rate is higher than the equivalent Fed rate also gives it more room to stand part indefinitely.
"I think the central bank will be quite comfortable to allow the U.S. to get back to the same level or even higher and not feel the same urgency (to hike rates)," according to Ken Wills, senior corporate dealer at CanadianForex.
From: Barrons
