Canadian Dollar Halts 11-Day Rally, British Pound Pares Friday’s Advance
The greenback strengthened against all of the majors on Monday, while the Canadian dollar remains the best performing currency against the reserve currency as investors raise expectations for a rate hike by the Bank of Canada later this year. The USD/CAD is 10pips higher on the day after moving only 43% of its daily ATR, and we may see the exchange rate continue to push higher going into the Asian trade, which could lead the pair to cross back above the 120-SMA (1.0218) and fill-in the gap from the 240-SMA at 1.0243. At the same time, the dollar-loonie may retrace the decline carried over from the previous month as the daily RSI bounces back from a low of 30, but we would certainly need to see price action cross back above the 10-Day SMA (1.0269) for a favorable short-term rebound to the upside. Nevertheless, Credit Suisse index swaps are up 129bpthis month after rising to a high of 66bp in February, and the Canadian dollar may continue to benefit from the rise in interest rate expectations as the BoC aims to normalize policy this year.
The British Pound halted the three-day rally as the Bank of England held a cautious outlook for the U.K., and the exchange rate is likely to face increased volatility later this week as the central bank is scheduled to release its policy meeting minutes on Wednesday. The GBP/USD is nearly 120pips lower on the day after moving 108% of its average true range, and fears of a protracted recover may lead the pair to test the lower bounds of its recent range as policy makers see a risk for another contraction in GDP later this year. Nevertheless, we may see the exchange rate hold steady going into the Asian session as the overnight decline appears to have stalled a low of 1.5021, and we may see the pair push higher over the week as the daily RSI bounces back from a low of 20. Meanwhile, the BoE minutes is likely to reinforce the central bank’s dovish stance for monetary policy as the central bank aims to encourage a sustainable recovery, and the MPC is likely to maintain the option to expand its asset purchase program over the coming months as Governor Mervyn King aims to balance the risks for growth and inflation.
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