USD/CAD Pulls Back as Focus Shifts to the FOMC Decision
USD/CAD has eased on its downtrend as investors await further cues from the Fed interest rate decision scheduled for Wednesday. The USD to CAD exchange rate is trading at 1.2867, which is sharply lower than its highest point last week.
Fed interest rate decision
Investors are especially keen on the Fed interest rate decision scheduled for release on Wednesday; one of the key drivers of the forex market in the current week. About two weeks ago, the currency pair hit its highest level since November 2020 at 1.3226 CA$ before pulling back. It is currently in a range-bound trade as investors await the highly anticipated Fed meeting.
On the one hand, officials like Governor Michelle Bowman approve a rate hike of 75 basis points during the July meeting and 50 basis points in coming months. However, others like Governor Christopher Waller are concerned that a 75 basis points hike is huge.
The central bank has increased its benchmark interest rate by 150 basis points since March in an effort to ease the high inflation. In its June meeting, it approved a 75 basis points hike; its highest in 28 years.
Notably, the aggressive tightening of its monetary policy has strengthened the US dollar against its rivals. After hitting parity about two weeks ago, EURUSD has since bounced back; trading sideways for close to a week as investors await further cues from Wednesday’s event. GBPUSD has also been hovering around the critical support zone of 1.2000 for a week now.
Crude oil price
Crude oil price is yet another major driver of USDCAD. Canada is the leading single source of US crude oil and petroleum imports. According to EIA, the North American nation accounted for over 50% of US gross imports in 2021. Subsequently, the Canadian dollar tends to move in tandem with the commodity’s price.
WTI futures, the benchmark for US oil, is in the green since the beginning of the week. On the one hand, supply tightness continues to support the commodity and the Canadian dollar by extension. However, there has been pressure in the form of slowed global economic growth and the subsequent concerns over its impact on oil demand. In fact, the latter aspect explains why USDCAD has held steady above the support level of 1.2800 CA$ for over a month now.