The USD/CAD pair extended its rise on Monday, as pessimism dominated global financial markets after the S&P rating agency downgraded the United States AAA credit rating, in addition to mounting concerns from the European debt crisis despite the ECB announcement to include Italian and Spanish bonds in its bond purchases program, which weighed down on confidence among traders and boosted demand for lower yielding and more safe assets, and the provided the USD/CAD with strong bullish momentum.
Moreover, crude oil prices dropped amid the uncertainty surrounding the outlook for global growth, which weighed down on the CAD as well.
Investors will be focused on the FOMC rate decision on Tuesday amid the recent developments, where it’s unclear whether the FOMC will signal the possibility of QE3 after the S&P downgrade to the U.S. debt. Meanwhile, investors will most likely continue to target lower yielding assets, and that should keep the bullish momentum going for the USD/CAD pair over the coming period.
Tuesday August 09:
Canada will release the housing starts index for the month of July at 12:15 GMT, where housing starts are expected to ease to 193.2 thousand, compared with the prior estimate of 197.4 thousand back in June.
The main focus will be on the FOMC rate decision at 18:15 GMT, where the Federal Reserve is expected to keep the rate at their historical low of 0.0-0.25% and might not take more actions to support the fainting recovery, nevertheless, investors are bracing for a surprise after the unexpected moves from the SNB and the BoJ and followed by the ECB with expanding the special money operations to ease the market tension and the Fed might just do so.