TRENDING:

USD/CAD falls back from 1.4400, BoC-Fed policy in focus

USD/CAD retreats from 1.4400 as the safe-haven appeal of the US Dollar diminishes after Trump rolled back 25% tariff proposal on Colombia.
Investors expect the Fed to leave interest rates steady, while the BoC is anticipated to cut them by 25 bps on Wednesday.
US President Trump is expected to place 25% on Canada right on the first day of February.

The USD/CAD pair retreats after failing to break above the round-level resistance of 1.4400 in Monday’s North American session. The Loonie pair ticks down as the US Dollar (USD) falls back after its safe haven diminished. United States (US) President Donald Trump put his proposal of imposing 25% tariffs on Colombia on hold

Over the weekend, Trump threatened to raise 25% tariffs on its South American trading partner as they refused to accept the entry of military flights from the US carrying illegal immigrants who have the nationality of Colombia. This scenario boosted the US Dollar’s safe-haven appeal as investors expected that it would set the tone for a global trade war. However, Trump vetoed his proposal after Colombia accepted his terms, which squared the USD’s appeal.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, resumes its downside journey towards the seven-week low of 106.70.

Going forward, investors will focus on the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Wednesday. The Fed is expected to announce a pause in the current policy-easing spell and leave interest rates unchanged in the range of 4.25%-4.50%, according to the CME FedWatch tool. Investors will pay close attention to Fed Chair Jerome Powell’s press conference after the policy announcement for fresh interest rate guidance.

Meanwhile, the Canadian Dollar (CAD) remains broadly weak as investors fear that Trump will impose 25% tariffs on Canada on February 1. The Wall Street Journal (WSJ) reported on early Monday that “momentum is growing among US President Trump’s advisers to place 25% tariffs on Mexico and Canada as soon as February 1.

Investors should brace for significant volatility in the Loonie this week. The Bank of Canada (BoC) is scheduled to announce its first monetary policy decision of 2025 on Wednesday. The BoC is expected to cut interest rates by 25 basis points (bps) to 3%.

Economic Indicator

BoC Interest Rate Decision

The Bank of Canada (BoC) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoC believes inflation will be above target (hawkish), it will raise interest rates in order to bring it down. This is bullish for the CAD since higher interest rates attract greater inflows of foreign capital. Likewise, if the BoC sees inflation falling below target (dovish) it will lower interest rates in order to give the Canadian economy a boost in the hope inflation will rise back up. This is bearish for CAD since it detracts from foreign capital flowing into the country.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD hovers below 1.1600, awaits Fed Minutes

EUR/USD flat lines after three days of losses, trading below 1.1600 in the European trading hours on Wednesday. The pair tracks the subdued price action in the US Dollar. Traders turn cautious and opt to stay on the sidelines ahead of the Minutes of the Fed's October monetary policy meeting.

GBP/USD stays depressed below 1.3150 after UK CPI inflation data

GBP/USD keeps its downbeat tone intact below 1.3150 in European trading on Wednesday. The UK annual Consumer Price Index (CPI) inflation declined to 3.6% in October, as expected, fanning expectations of a BoE rate cut in December. The focus now shifts to the mid-tier US data and Fed Minutes.

Gold climbs to $4,100 neighborhood; eyes weekly high ahead of FOMC minutes

Gold builds on the previous day's recovery from levels just below the $4,000 psychological mark, or a one-and-a-half-week low, and gains positive traction for the second straight day. The momentum lifts the bullion to the top end of its weekly range, with bulls now awaiting a sustained move beyond the $4,100 round figure before positioning for further gains as the focus remains on FOMC minutes.