USD/CAD climbs to 1.3460 on risk aversion

The Canadian dollar extended its losses amid the market’s prevalent risk-off sentiment. Canada printed a deficit on its current account and this news could constitute a headwind for the Canadian dollar.

The Canadian dollar extended its losses to two straight days, though it trimmed some of its losses after the USD/CAD pair hit a daily high of 1.3473 but retreated toward the current spot price.

Factors including China’s protests due to Covid-19 zero-tolerance policies and Federal Reserve (Fed) officials laying the ground for slower borrowing cost increases capped the USD/CAD rally. At the time of writing, the USD/CAD is trading at 1.3442, above its opening price.

Risk aversion is the name of the game on Monday. Protests in China related to Covid-19 lockdowns and mass testing, and fears that if it escalates might derail the global economy, weighed on investors’ mood.

New York Fed President John Williams, said that the Fed could reduce rates in 2024, a dovish statement that caused a fall in the USD/CAD from 1.3452 to 1.3420s.

Earlier, Williams said he expects inflation to fall to 5.0%-5.5% by the end of 2022 and 3.0%-3.5% by late 2023 and noted that the baseline forecast does not predict a recession for the US. In the meantime, the St. Louis Fed President James Bullard said the Fed needs to keep increasing rates until 2023. He commented that rates must reach the low end of the 5%-7% rate range, adding that a recession is not inevitable.

The latest FOMC minutes indicated that “A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” cementing the Fed’s moderating interest rates.