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USD/CAD: US dollar gains ground ahead of FOMC minutes

H.S. Borji
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The North American pair rebounded Wednesday ahead of the minutes of the October Federal Open Market Committee policy meetings, as investors prepared for potentially groundbreaking revelations about the path of US monetary policy.

The USDCAD cemented itself above the 1.13 handle, climbing to an intraday high of 1.1358. The pair would subsequently consolidate at 1.1347, advancing 0.4 percent. The technical charts show initial support at 1.1262 and resistance at 1.1374.

The pair reached a five-year high earlier this month, as plunging oil prices and a downbeat Bank of Canada triggered a broad sell-off for the loonie. The USDCAD touched a high of 1.1426 on November 7, the pair’s highest since the summer of 2009.

Disappointing Canadian GDP growth and a brewing oil price war have weighed on the loonie, whose near-term outlook continues to deteriorate. On the flipside, the US dollar is enjoying an unprecedented winning streak, underpinned by a stronger domestic economy.

In response to an improving economy, the Federal Reserve reined in its record bond buying program at the October FOMC policy meetings, effectively putting an end to years of fiscal stimulus designed to promote lending and economic growth. The end of QE points to the growing divergence in monetary policy between the United States and other advanced economies, particularly Japan and the European Union, which are planning even wider intervention policies to boost inflation.

The minutes of the October meetings, which are scheduled for release later this afternoon, could shed light on the pace and timing of a first rate hike. Although the central bank is not expected to begin normalizing interest rates until well into next year, the latest batches of economic data are expected to compel deeper consideration about an earlier than expected rate hike.

The US economy added 214,000 nonfarm jobs last month, as the unemployment rate ticked down to 5.8 percent. Employers have added an average of 222,000 jobs over the last 12 months. Roughly 2.2 million jobs have been created since the start of 2014.

Recent data also point to a broad pickup in housing activity, as an improving consumer climate and declining mortgage rates have boosted buyer traffic.

Building permits rose to a nearly six-and-a-half year high in October, climbing 4.8 percent to a seasonally adjusted annual rate of 1.08 million, the Commerce Department reported today. Single-family housing starts rose 4.2 percent to a 696,000 unit rate.

Strong growth figures are likely to support expectations for an early rate adjustment, despite efforts from the central bank to rein in expectations about monetary policy. Those expectations will continue to support a bullish US dollar.

The US dollar index, a trade-weighted average of the dollar’s performance, advanced 0.15 percent to 87.70. The index has gained more than 10 percent since the beginning of July in what has been an unprecedented run.

The Federal Reserve will release the minutes of the October 28-9 policy meetings at 2:30 PM EST.

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