USD/CAD ticks up to near 1.3850 in countdown to BoC-Fed monetary policy

USD/CAD edges higher to near 1.3850 ahead of Canada-US interest rate policy.
The BoC is expected to leave interest rates unchanged at 2.25%, while the Fed seems to cut them by 25 bps.
US employers posted 7.67 million fresh jobs in October, unexpectedly higher than the former reading of 7.658 million.

Sagar Dua FXStreet

The USD/CAD pair trades marginally higher to near 1.3855 during the Asian trading session on Wednesday. The Loonie pair is expected to trade broadly sideways as investors await monetary policy announcements by the Bank of Canada (BoC) and the Federal Reserve (Fed), which are scheduled for the North American session.

At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades flat around 99.25, following an upside move the previous day. The DXY attracted bids on Tuesday after the release of the surprisingly upbeat United States (US) JOLTS Job Openings data for October. The data showed that fresh jobs posted increased marginally to 7.67 million from 7.658 in September, while they were expected to come in lower at 7.2 million.

According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December policy meeting is 87.6%. This would be the third interest rate cut by the Fed in a row.

Assuming that the Fed is almost certain to ease interest rates further, the major highlight of the central bank’s monetary policy will be the Economic Projections report. The report will provide fresh estimates for inflation, growth and unemployment, and the Fed’s dot plot, which shows where policymakers collectively see Federal Funds Rate heading in the medium and longer term.

Meanwhile, the BoC is expected to hold interest rates steady at 2.25% amid signs that Canada’s labor market is regaining ground. In the September-November period, the Canadian economy has created 180.6K fresh jobs after releasing 106.3K workers in the July-August period. The Unemployment Rate has also fallen to 6.9% in November from 6.5% in October.

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).

GBP/USD remains slightly bid near 1.3300

GBP/USD now advances marginally and manages to dispute the 1.3300 region on Tuesday. Indeed, Cable regains some balance on the back of the lacklustre performance of the Greenback, all preceding the Fed’s meeting on Wednesday and the BoE’s gathering on Thursday.

EUR/USD recedes from tops, back below 1.1400

EUR/USD manages to set aside part of the recent weakness and clinches decent gains on Tuesday. Indeed, spot keeps the trade below the 1.1400 mark amid acceptable losses in the US Dollar, all following rising optimism of a US-Iran deal and steady caution prior to the FOMC gathering on Wednesday.

Gold holds above $4,000; looks to FOMC for fresh impetus amid US-Iran tensions

Gold is seen consolidating above $4,000 as traders opt to wait for the crucial FOMC decision due later this Wednesday for more cues about the Fed's future policy path. The outlook, in turn, will influence the US Dollar and provide some meaningful impetus to the non-yielding bullion. In the meantime, the risk of resumption of US-Iran hostilities continues to underpin the USD's reserve-currency status, acting as a headwind for bullion.

Australia CPI could boost Aussie if inflation arrives above 4%

The Australian Bureau of Statistics will publish the June Consumer Price Index on Wednesday at 01:30 GMT. The report is expected to show that inflation rose 4% from a year earlier, matching the May reading. The monthly CPI is foreseen at 0.2% following the -0.7% print from May. The ABS will also release the Trimmed Mean CPI, the Reserve Bank of Australia’s favorite inflation gauge.

Indian Rupee outlook: Downtrend set to persist – Just at a slower pace

The Indian Rupee just endured its most brutal six-month stretch in years, battered by a perfect storm of global shocks. From United States-India trade uncertainty to surging Oil prices and the significant outflow of Foreign Institutional Investment from the Indian stock market, every event brought nothing but pain for the Indian currency.

US Dollar mid-year outlook: Exceptional currency, exceptional risks?

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