USD/CAD Extends Gains Following Fed Remarks on Aggressive Policy Tightening

Tips 

• The dollar gained strength versus a basket of major currencies.

• Benchmark yields have retreated following a recent surge.

• Gold and silver prices increased in response to inflation fears and the imposition of fresh sanctions on Russia.

• Oil prices continue to decline as more reserves are released.

The dollar nearly reached a two-year high against a basket of currencies as the Federal Reserve made it clear that it intends to battle inflation forcefully through rate hikes. Benchmark yields decreased a few basis points today after the Federal Reserve announced its intention to continue tightening rates. The 10-year yield reaches its highest level since March 2019 of 2.67 percent as investors digest news of the Fed's policy tightening. Gold and silver prices increased as rising inflation fears fueled a surge in demand for safe-haven assets. This circumstance contradicts the Federal Reserve's recommendations on interest rate hikes. Oil prices fell as EIA member states announced plans to release additional strategic reserves. This is the largest release since the stockpile was established in 1980. Analysts disagree on the extent to which the release of supply will affect market tightness.

For the latest week, jobless claims decreased by 5,000 to 166,000. This figure, which is the lowest since 1968, indicates the extent to which the job market tightened last week. Dow Jones estimated the figure at 200,000. The figures indicate that the labor market has been experiencing a significant labor shortage. Increased demand for labor has resulted in rising wages and soaring inflation.

Technical Evaluation

The USD/CAD exchange rate continues to increase, staying near a two-week high of 1.258. The substantial increases come in the context of the Federal Reserve's aggressive policy stance and declining oil prices. New penalties against Russia, on the other hand, will bolster the Loonie and may limit gains. Reduced yields may act as a brake on the dollar's strength. In general, the Fed's tightening policy benefits USD bulls. Resistance is located near the 10-day moving average, which is now at 1.265. Near yesterday's lows near 1.243, support is seen. The short-term momentum shifted to the upside when the fast stochastic crossed above the buy signal.

Although the MACD line generated a crossover sell signal, the medium-term momentum is negative but favorable. When the MACD line (the 12-day moving average minus the 26-day moving average) passes the MACD signal line, this scenario occurs (the 9-day moving average of the MACD line).