- USD/CAD trades on a stronger note near 1.3665 on Tuesday.
- The FOMC is widely expected to hold rates steady in its current 5.25%–5.50% range on Wednesday.
- The further downside of oil prices weighs on the commodity-linked Loonie.
The USD/CAD pair posts modest gains around 1.3665 on Tuesday during the early Asian trading hours. A modest rebound of the US Dollar (USD) provide some support to the pair. Meanwhile, the decline in oil prices weighs on the commodity-linked Loonie. Investors will keep an eye on the Canadian February Gross Domestic Product (GDP) growth number. The attention will shift to the Federal Open Market Committee's (FOMC) interest rate decision on Wednesday.
The US Federal Reserve’s (Fed) policymakers see no urgency in lowering rates. Fed Governor Michelle Bowman said she sees “upside risks” to inflation. Meanwhile, Minneapolis Fed President Neel Kashkari floated the possibility of having no rate cuts this year. Atlanta Fed’s Raphael Bostic said he could favor hiking them if inflation gets worse. The US Fed’s higher-for-longer rate narrative lifts the Greenback and creates a tailwind for the USD/CAD pair.
The FOMC is widely expected to leave rates unchanged in their current 5.25%–5.50% range on Wednesday. Investors will closely monitor the tone of the FOMC statement and press conference. If the US central bank remains hawkish, this might strengthen the USD and attract more foreign capital inflows. On the other hand, the dovish tone might exert some selling pressure on the Greenback.
On the Loonie front, traders expect the Bank of Canada (BoC) to wait until June or July to start cutting its policy rate. The monthly Gross Domestic Product (GDP) data for February might offer some hints about how the Canadian economy performs. In case the report shows weaker-than-expected data, this might allow the Bank of Canada (BoC) to pivot to interest rate cuts sooner and weigh on the CAD. Meanwhile, the further downside of oil prices might exert some selling pressure on the Loonie, as Canada is the largest crude oil exporter to the United States (US).
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