USD/CAD trades on a stronger note above 1.3750, all eyes on Fed rate decision

The USD/CAD pair holds positive ground around 1.3778 on Wednesday during the early Asian trading hours. The weaker-than-expected Canada’s February Gross Domestic Product (GDP) data weighs on the Loonie. Meanwhile, the firmer US Dollar (USD) above 106.30 remains to support the pair for the time being. 

Investors will closely monitor the US Federal Reserve's (Fed) interest rate decision on Wednesday, with no change in rate expected. Also, Fed Chair Jerome Powell’s press conference might offer some hints about the future monetary policy outlook. The higher-for-longer rate narrative might boost the Greenback further and create a tailwind for the USD/CAD pair. According to the CME FedWatch Tool, financial markets are now pricing in nearly 44% chance that the Fed will cut the rate in September, down from 60% at the start of the week.  

Apart from the Fed rate decision on Wednesday, the US ADP Employment Change, US ISM Manufacturing PMI, and Canadian S&P Global Manufacturing PMI will be due. Data released on Tuesday showed that the US Conference Board's Consumer Confidence Index for April fell to the lowest level since July 2022 at 97.0 from 103.1 in March. Furthermore, the Employment Cost Index in the US rose by 1.2% YoY in the first quarter of 2024, compared to a 0.9% rise in Q4 of 2023. This figure came in above the market consensus of 1.0%.

On the CAD’s front, Canada's economy weakened in the first quarter of this year, prompting expectations that the Bank of Canada's (BoC) might cut interest rates in June. The Canadian Gross Domestic Product (GDP) grew at a slower pace of 0.2% MoM in February, compared to the previous reading of  0.5%, weaker than the market expectation of 0.3% expansion, according to Statistics Canada. Meanwhile, the decline of oil prices exerts some selling pressure on the commodity-linked Loonie, as Canada is the largest crude oil exporter to the US.