Gains are prospected for the Canadian dollar over its US counterpart on the USD/CAD currency pair today as a rally surfaces from another central bank mediation in the financial markets. The Loonie currency stands to benefit from a shift in risk confidence in the markets today, making a sell bias for the pair a reasonable option.
Less than a week after the Federal Reserve opened the gates for a third round of quantitative easing in the US, the Bank of Japan unexpectedly expanded its asset-purchase fund by 10 Trillion Yen, seeking to counter an increasing danger of contraction in the world’s third-largest economy. According to a statement from the Bank, the BOJ’s program, in which it buys mainly government debt, or JGBs, was enlarged to 55 Trillion Yen. Governor Masaaki Shirakawa said the Bank will likewise abandon minimum yields for 1.8 Trillion Yen in monthly government-bond purchases conducted separately from the stimulus fund, opening the door to the potential for negative rates.
The markets reacted positively to this policy action as stocks surged, commodities rallied, and the demand for risk inclined. In fact, oil – which is the Canadian nation’s primary export, climbed from the lowest close in more than two weeks in New York amid speculation that Japan’s expanded program of monetary easing could bolster fuel demand in the world’s third-biggest crude user. This aids the prospects of the Loonie today against the safety asset Greenback. The Canadian currency has been on a two-day slump against the US dollar as fears resurfaced over Spain and the mortgage asset purchases planned by the Fed.
Further, data from the US today is seen to buoy risk demand as forecasts point out that new home construction and sales of previously owned houses probably climbed in August. Housing Starts for August is seen to post at 0.77 Million from 0.75 Million in July, while the Existing Home Sales figure for the same period is perceived to have inclined from 4.47 Million to 4.57 Million.
These fundamental data today are anticipated to support a short position for the USD/CAD today. Be wary still of probable technical price corrections, however.
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