USD/CAD tumbles below 1.3700 on broad US Dollar weakness, on mixed US economic data

• US Initial Jobless Claims flashed the tight labor market, while Existing Home Sales continued to fall, feeling the shocks of the Fed’s policy.
• Higher-than-expected inflation in Canada keeps investors reassessing another large-size rate hike by the Bank of Canada.
• USD/CAD tumbled below 1.3700 after hitting a daily high of 1.3806.

The USD/CAD plunged from around 1.3800 as the US Dollar losses against most G8 currencies, despite high US Treasury yields and expectations of the Fed hiking rates by a larger size at November’s meeting. Also, a risk-on mood spurred by China’s cutting quarantine for arrivals was cheered by investors as US equities are trading with gains. At the time of writing, the USD/CAD is trading at 1.3695.

The US Dollar weakened as claims for unemployment dropped

In the Asian session, wires reported that China could ease quarantines for arrivals from 10 to 7 days. That said, risk-perceived assets edged higher on the headline, as shown by global equities advancing. Aside from this, US economic data revealed before Wall Street opened reported that US Initial Jobless Claims for the last week dropped unexpectedly to 214K, less than the 231.5K estimated. Given the Federal Reserve hikes more than 300 bps to the Federal funds rate to the 3.25% area, the labor market is still showing resilience, as shown by the report. It should be noted that September’s Unemployment Rate ticked lower, meaning the Fed job is not done.

Of late, US Existing Home Sales fell 1.5%, less than the 2.4% contraction estimated, though it has been the eighth month in a row, as elevated mortgage rates and higher prices keep prospective buyers at bay.

Canada’s inflation topped estimates; TD Securities foresees a 75 bps hike by the BoC

On the Canadian front, Wednesday’s September inflation report surprised the upside, jumping 6.9% YoY, above estimates of 6.7%, so market participants ratchet up expectations for the Bank of Canada’s additional rate hikes, with a 75 bps lift for the next meeting fully priced in. Following the report, the USD/CAD trimmed some of its gains. However, throughout Thursday’s session, positioning ahead of the BoC’s meeting in the next week underpinned the Loonie, with the USD/CAD tumbling more to the 20-DMA.

Analysts at TD Securities changed their view and expected the BoC to lift rates by 75 bps. They noted, “The Bank has grown increasingly concerned with the inflation backdrop and potential for long-term inflation expectations to become unanchored, and this data does not provide any evidence that inflation has turned. This should tip the scales to a 75bp move next week.”

USD/CAD Key Technical Levels