USD/CAD STAYS FIRM AT AROUND 1.3620S POST US ISM SERVICES PMI

USD/CAD is set to finish the week flat after solid US economic data.

US ISM Services PMI came slightly below estimates, though it remained at expansionary territory.

The Bank of Canada is expected to keep rates unchanged at 4.50% at the upcoming monetary policy meeting.

The USD/CAD cements its bullish case by staying above the 1.3600 figure, courtesy of falling oil prices. Heated discussions within the Organization of the Petroleum Exporting Countries (OPEC) sent WTI prices down almost 3%, a headwind for the Canadian Dollar (CAD). At the time of writing, the USD/CAD is trading at 1.3625.

USD/CAD reached 1.3630s post US ISM Non-Manufacturing PMI

Wall Street opened in positive territory. The US ISM Non-Manufacturing PMI for February came at 55.1, below the prior’s month 55.2, but exceeded estimates of 54.5, signaling that activity remains firm. The Prices Paid Index subcomponent, estimated to drop to 64.5, rose by 65.6, below January’s 67.8, higher than expected, but it shows an improvement compared to the last month.

After the ISM’s release, the US Dollar Index (DXY), a measure of the buck’s value, improved toward 104.924, trimmed some of its earlier losses, and is almost flat, while the USD/CAD jumped 15 pips from around 1.3615 to 1.3630s.

US Federal Reserve’s (Fed) speakers highlighted the importance of tackling inflation towards the 2% target. On Thursday, Fed Governor Christopher commented that inflation was not easing as expected and signaled his openness to increase rates if price pressures don’t reduce.

In the meantime, the Wall Street Journal reported that the United Arab Emirates (UAE) is having an internal debate about leaving OPEC, as the country has been seeking authorization to increase its crude output. Consequently, WTI fell 3% towards three-day lows before recovering some ground.

On the Canadian front, Building Permits fell by 4% in January from December and were down 5% YoY, according to data revealed by Statistics Canada. The fall was spurred by aggressive rate hikes of the Bank of Canada (BoC).

The BoC announced that it would pause its tightening cycle and is expected to hold it at around 4.50% at its next meeting.

Therefore, the USD/CAD is expected to appreciate further, even though analysts estimate a stronger Canadian dollar for the year. Improving the global economic outlook would undermine USD/CAD, as traders seeking return will turn to high beta currencies, like the Loonie (CAD). In an alternate scenario, interest rate differentials between the Fed and the BoC would likely favor the US Dollar; hence further upside in the USD/CAD is foreseen.