Daily Afternoon Report 25.10.2016
The Canadian dollar fell against its U.S. counterpart on today, re-approaching a seven-month trough set on Friday as heightened expectations for a Federal Reserve rate hike continued to underpin demand for the greenback.
The greenback has rallied this month as hawkish remarks by Federal Reserve officials in recent weeks solidified expectations for a rate hike before the year’s end.
Expectations for higher interest rates typically boost the dollar by making the currency more attractive to yield-seeking investors.
On Monday, Chicago Fed President Charles Evans said that the U.S. central bank could raise rates three times between now and the end of next year so long as the inflation outlook and the labor market remain on track.
Also on Monday, data showed that activity in the U.S. manufacturing sector rebounded in October.
The Fed’s next meeting is in November, but a rate hike ahead of the presidential election is seen as unlikely.
Investors currently price a 72.5% chance of a rate hike at the Fed’s December meeting; according to federal funds futures.
The Canadian dollar remained on the defensive after the Bank of Canada indicated that it had been considered cutting interest rates for the third time in two years at last week’s policy meeting.
BoC Governor Stephen Poloz said on Monday that any additional easing would bring the central bank closer to unconventional monetary policy and added that the decision on whether to cut rates again is not one to take lightly.