With no major economic reports expected today from North America, market participants speculate on the announcement from the Federal Reserve and the effect on the US dollar opposite the Canadian currency. Traders likewise continue to wait for hints from both Democrats and Republicans on the progress of the fiscal cliff negotiations.
A Bloomberg survey of economists states that the Federal Open Market Committee will announce a decision to amplify record accommodation tomorrow in monthly Treasury buying that will push its balance sheet almost to $4 Trillion. The monetary policy panel pledged in October to continue that plan until the labor market improves “substantially.”
The central bank is scheduled to end Operation Twist this month. The program swaps $45 Billion of short-term Treasuries each month for longer-term government debt, which has kept the total size of the balance sheet unchanged. Meanwhile, what economists are expecting from a probable new accommodation through new Treasury purchases would expand the balance sheet.
Roberto Perli, a Managing Director at International Strategy & Investment Group Inc. comments that by adding Treasury purchases, policy makers “would continue to lower mortgage rates and create conditions that would be favorable for a continued recovery in the housing market.”
Mortgage bond purchases by the Fed have helped revive the housing market by pushing down the rate on a 30-year, fixed-rate mortgage last month to a record 3.31 percent. Policy makers “do not want mortgage rates to climb much higher,” said John Lonski, Chief Economist for Moody’s Capital Markets Group in New York. “They will do their utmost to keep long-term borrowing costs on the low side.”
Treasury purchases would constitute “insurance that if there’s a failure to agree between Congress and the president, the Fed is out there to prevent an even bigger downdraft,” says John Silvia, Chief Economist at Wells Fargo & Co.
A sell bias is suggested for the USDCAD today, considering the likely demand for risk on speculations of the Fed’s actions tomorrow. Technical price corrections are still likely, though.
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