Canadian Dollar Talking Points
USD/CAD[1] snaps the series of lower highs and lows from last week as commodity bloc currencies weaken against the Greenback, and the Federal Reserve interest rate decision is likely to sway the near-term outlook for the exchange rate as the central bank is expected to normalize monetary policy.
USD/CAD Rate Outlook Hinges on Federal Reserve Rate Decision
USD[2]/CAD[3] retraces the decline from the yearly high (1.2901) with the Federal Open Market Committee[4] (FOMC) widely anticipated to deliver a 25bp rate hike later this week, and the exchange rate may continue to trade to fresh yearly highs in March if the update to the Summary of Economic Projections (SEP) reflects a shift in the Fed’s forward guidance.
There is likely to be increased attention around the Fed’s SEP as the central bank emphasizes that “the federal funds rate is our primary means of adjusting monetary policy,” and the fresh forecasts may show a steeper path for US interest rates as consumer prices[5] increase for the sixth consecutive month.
Source: FOMC
As a result, USD/CAD may stage another attempt to test the 2021 high (1.2964) if Chairman Jerome Powell and Co. prepare US households and businesses for a series of rate hikes, and it remains to be seen if the FOMC will unveil a more detailed exit strategy as Fed officials discuss unloading the balance sheet later this year.
However, USD/CAD may face a more bearish fate if the FOMC delivers a dovish rate hike, and the exchange rate may continue to give back the advance from the monthly low (1.2587) unless the Fed shows a greater willingness to normalize monetary policy at a faster pace.
In turn, USD/CAD may face headwinds ahead of
