USD/CAD sits near one-year high, eyes 1.3900 ahead of the FOMC decision
|- USD/CAD continues to draw support from bearish Oil prices and a modest USD strength.
- Tuesday’s disappointing Canadian GDP also undermines the Loonie and acts as a tailwind.
- Traders now look to the US macro data for some impetus ahead of the key FOMC decision.
The USD/CAD pair attracts some dip-buying during the Asian session on Wednesday and inches back closer to its highest level since October 2022 touched the previous day. Spot prices currently trade around the 1.3885 region and continue to draw support from a combination of factors.
Crude Oil prices languish near a two-month low despite worries that the ongoing conflict between Israel and Hamas could lead to a disruption in supply from the Middle East. Adding to this, the disappointing release of the monthly Canadian GDP print on Tuesday continues to undermine the commodity-linked Loonie and act as a tailwind for the USD/CAD pair. In fact, data published by Statistics Canada showed that the economy was effectively flat in August and the July GDP was revised down to show a marginal contraction as compared to a zero growth reported initially. Furthermore, the flash estimate indicated that the economy was likely also unchanged in September, which translates into an annualized 0.1% decline in the third quarter and confirms a technical recession.
Apart from this, a modest US Dollar (USD) strength turns out to be another factor lending support to the USD/CAD pair. The prospects for further policy tightening by the Federal Reserve (Fed) remain supportive of elevated US Treasury bond yields and continue to benefit the Greenback. The USD bulls, however, seem reluctant to place aggressive bets and now look to the outcome of the highly-anticipated FOMC meeting before placing fresh bets. The US central bank will announce its decision later during the US session and is expected to maintain the status quo for the second time in a row. Investors, however, seem convinced that the Fed will stick to its hawkish stance in the wake of the US economic resilience and keep the door open for one more rate hike in 2023 to combat sticky inflation.
Hence, market participants will closely scrutinize the accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference for cues about the future rate-hike path. This, in turn, will help determine the next leg of a directional move for the buck and provide some meaningful impetus to the USD/CAD pair. Heading into the key central bank event risk, traders will confront the release of important US macro data – the ADP report on private-sector employment, the ISM Manufacturing PMI and JOLTS Job Openings data – later during the early North American session. This, along with Oil price dynamics, should contribute to producing short-term trading opportunities around the major.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.