Ahead of FOMC Minutes, Dollar Weakens As Risk Sentiment Improves

7 July 2021 | Updated: 7 July 2021

As traders await the FOMC minutes, the dollar and the rest of the currency markets are often range-bound. Discussions on the date of tapering, which was not explicitly mentioned in the announcement, as well as economic estimates, will be the central objective. As worldwide mood has improved, the dollar’s surge seems to be shedding strength.

In a note to a meeting of G20 finance ministers and central bank governors later in the week, the IMF said that “global growth has generally progressed in line with forecasts, with clear signs of divergence.” He called on the G20 to “take immediate action” to “stop the increase in human and economic losses from the pandemic.”

In addition, the IMF said that political support should be “adapted to the stage of the crisis, avoiding abrupt transitions.” Monetary policy must “remain adaptive in most economies.” In particular, where “inflationary expectations are fixed”, the continuation of monetary policy is justified.”

However, in the countries that are “the most advanced in the recovery process,” “the stated policy intentions will securely anchor inflationary expectations and avoid adverse spillovers on weaker economies.” “Where inflationary pressures are high and expectations are not well-founded, monetary policy should be tightened.”

Investors Look to FOMC As USD/CAD Bullish Potential Intact

During the session, the USD/CAD pair continued its offered tone, dropping to new daily lows around 1.2432. The US dollar was unable to profit from the overnight goodish intraday surge up due to expectations that the Fed would maintain its ultra-loose monetary stance for an extended-term. This was interpreted as a major element putting negative pressure on the USD/CAD pair.

However, the commodity-linked loonie was weakened by a lower tone around crude oil prices, which should prevent any more losses for the USD/CAD pair. Investors should also avoid putting any aggressive wagers ahead of the release of the FOMC meeting minutes on Wednesday.

If there is a sustained dip below, the upbeat picture will be shattered, prompting some technical selling. Before reaching the 1.2300 level, the USD/CAD pair could fall to the 1.2320-15 support area. Following through on some of the previous selling, the pair could be vulnerable to a retest of the 1.2250 support level.

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Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.