USD/CAD Struggles Near Two-Week Low
- The USD/CAD pair hangs near a two-week low following a dovish Fed-inspired USD downtick.
- The recent rally in Oil prices supports the Loonie, capping the major currency pair.
- Bets for a larger interest rate cut by the Bank of Canada (BoC) act as a headwind for the CAD, limiting losses.
The USD/CAD pair is facing challenges in gaining traction during the Asian session on Friday, currently trading around the 1.3555 region. This level is well within reach of a nearly two-week low touched the previous day.
Factors Affecting USD/CAD Pair
The US Dollar (USD) continues to experience selling pressure for the second consecutive day, hovering near its lowest level since July 2023. This decline is a result of the Federal Reserve’s (Fed) significant interest rate cut on Wednesday, which has led to expectations of further rate cuts. The prevailing risk-on sentiment in the market is also contributing to the USD downtrend, acting as a headwind for the USD/CAD pair.
On the other hand, Crude Oil prices have been consolidating at over a two-week high, supporting the Loonie due to concerns about declining global stockpiles and escalating tensions in the Middle East. This scenario is capping the USD/CAD pair, although expectations of a larger interest rate cut by the Bank of Canada are limiting the Canadian Dollar’s gains.
BoC Rate Cut Expectations
The market’s anticipation of a 50 basis points rate cut by the Bank of Canada next month has intensified following recent data releases. Canada’s Consumer Price Index (CPI) showed its smallest increase since February 2021, with core measures hitting a 40-month low. These factors are discouraging bullish bets on the Canadian Dollar and providing some support to the USD/CAD pair ahead of the upcoming Retail Sales data release from Canada.
Market Influences
Traders will closely monitor BoC Governor Tiff Macklem’s speech and Oil price dynamics during the North American session. Additionally, comments from Philadelphia Fed President Patrick Harker and overall market sentiment will impact USD demand, potentially influencing the direction of the USD/CAD pair. Despite these factors, the pair is likely to record losses for the first time in three weeks.
Fed FAQs
The Federal Reserve (Fed) plays a crucial role in shaping monetary policy in the United States. Here are some frequently asked questions about the Fed:
Price Stability and Full Employment
Monetary policy in the US is shaped by the Federal Reserve (Fed), which aims to achieve price stability and foster full employment. The Fed adjusts interest rates to control inflation and stimulate economic growth.
FOMC Meetings
The Federal Open Market Committee (FOMC) holds eight policy meetings a year to assess economic conditions and make monetary policy decisions. The FOMC consists of twelve Fed officials who play a key role in setting interest rates.
Quantitative Easing (QE)
Quantitative Easing (QE) is a non-standard policy measure used by the Fed during crises or low inflation environments. It involves the Fed purchasing bonds to increase credit flow in the financial system, which typically weakens the US Dollar.
Quantitative Tightening (QT)
Quantitative Tightening (QT) is the reverse of QE, where the Fed reduces its bond holdings. This process is usually positive for the value of the US Dollar.