- USD/CAD appreciates as the Fed reaffirms expectations for three interest rate cuts in 2024.
- Higher WTI price could have contributed to underpinning the Canadian Dollar.
- FOMC has projected stronger growth throughout 2024 and 2025 than initially anticipated.
USD/CAD moves downward to near 1.3470 during the Asian session on Thursday, extending its losses for the second successive day. The Canadian Dollar (CAD) likely found support from rising Crude oil prices.
West Texas Intermediate (WTI) crude oil prices edge higher, reaching close to $81.70 by the time of reporting. This increase may have bolstered the CAD, as the United States (US) Energy Information Administration (EIA) announced a second consecutive week of declines in Crude inventories, indicating strong demand in the world's largest oil consumer.
Meanwhile, the Bank of Canada's (BoC) Governing Council is considering potential rate cuts in 2024 should economic conditions align with forecasts. However, internal disagreements persist regarding the timing of such cuts and the risks associated with inflation. Governor Tiff Macklem remains cautious about immediate rate adjustments, citing concerns over underlying inflationary pressures.
At the time of writing, the US Dollar Index (DXY) has declined to approximately 103.20, primarily driven by weaker US Treasury yields. Yields for 2-year and 10-year bond coupons have fallen to 4.58% and 4.25%, respectively. This decrease can be attributed to the US Federal Reserve's (Fed) reaffirmation of expectations for three interest rate cuts this year.
The Federal Reserve maintained its interest rates at 5.5% during Wednesday's policy meeting. Investor sentiment continues to indicate expectations of additional easing measures in 2024, despite the Federal Open Market Committee (FOMC) projecting stronger growth throughout 2024 and 2025 than initially anticipated.
Notably, the FOMC's Dot Plot of interest rate expectations has shown an increase in the long tail end of the curve. Rates are now forecasted to reach approximately 3.1% by the end of 2026, compared to the previous projection of 2.9%.
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