USD/CAD Surges to 1.3730 Post Feds Meeting

Key Points:

USD/CAD at 1.3730 after a three-day decline due to renewed US Dollar demand.
The Fed held interest rates steady at 5.25%-5.50%, boosting USD.
Cut benchmark rate by 25 bps to 4.75%, contrasting with the Fed’s stance.

As of Thursday during the early Asian trading hours, the USD/CAD pair is priced at 1.3730, marking a notable resurgence after a three-day losing streak. The momentum shift is due to renewed demand for the US Dollar after the Federal Reserve’s hawkish interest rate hold. The decision by the Federal Reserve has injected a new wave of confidence in the US Dollar, bolstering its value against the Canadian Dollar.

Fed’s 5.25%-5.50% Hold Boosts USD/CAD

The recent June FOMC meeting held by the Federal Reserve played a crucial role in this scenario. The Fed maintained its benchmark rate at 5.25%–5.50%, marking the seventh consecutive hold. Fed Chair Jerome Powell’s comments underscored the effectiveness of the current restrictive monetary policy in addressing inflation. He emphasised the need to observe further progress on inflation before considering any changes. Notably, the expectations for rate cuts have been revised significantly, with just one anticipated this year compared to three in March.

US Jobless Claims and Fed Speech to Affect USD/CAD

The market awaits US economic data releases, including weekly Initial Jobless Claims and the Producer Prices Index (PPI). A Federal Reserve’s John Williams speech could provide further insights into the central bank’s future policy direction. These events may impact USD/CAD by providing key insights into the US economy’s health and potential monetary policy changes.

Inflation Eases: May CPI at 3.3%, Core at 3.4%

The recent Consumer Price Index (CPI) data from May showed a 3.3% year-on-year increase. This was slightly below the previous reading of 3.4%. However, it was in line with expectations. Similarly, the Core CPI, which excludes volatile food and energy prices, showed a year-on-year increase of 3.4%, down from April’s 3.6% and slightly below the estimated 3.5%. These figures show a gradual easing of inflation, which the Federal Reserve will closely monitor for future policy decisions.

BoC Cuts Rate by 25 Basis Points to 4.75%

In contrast, under Governor Tiff Macklem, the Bank of Canada recently took a different stance by lowering its benchmark rate by 25 basis points to 4.75%. Macklem’s comments suggested limiting how far the Canadian central bank can diverge from the Federal Reserve’s policies. However, he indicated that the limit is not yet reached. Market expectations suggest nearly 150 basis points of additional cuts over the next few years, highlighting a more dovish outlook than the US.