Anna 
During Monday’s Asian session, the USD/CAD pair experienced a slight dip, hovering just above the mid-1.3800 level. This minor decline can be attributed to waning USD strength. Market participants are now gearing up for the pivotal Federal Reserve (Fed) interest rate decision scheduled for Wednesday, widely anticipated to remain unchanged. Currently, USD/CAD is trading at approximately 1.3862, marking a marginal 0.06% decline for the day.
The impending Fed decision holds the spotlight, with close scrutiny on the central bank’s actions and words. While the Fed is expected to keep rates steady at the conclusion of its two-day meeting, it is essential to note that the core U.S. personal consumption expenditures index (PCE), the Fed’s preferred inflation metric, continues to exceed its 2% target.
Following the September meeting, the Federal Reserve revealed that recent economic data indicates robust growth in economic activity. Although job growth has exhibited a recent slowdown, it remains fundamentally robust. Nevertheless, Fed Chairman Jerome Powell emphasized persistent concerns over elevated inflation levels. This sentiment has fueled expectations that the Fed may opt for another interest rate hike in December. The Fed’s commitment to “maintaining higher interest rates for a longer period of time” could bolster the U.S. dollar, acting as a favorable force for USD/CAD.
In recent data, the U.S. core personal consumption expenditures index (PCE) for September registered a year-on-year decrease from 3.8% to 3.7%, in line with market forecasts. On a monthly basis, the core PCE price index surged by 0.3%, surpassing the preceding reading of 0.1%. The overall PCE price index for September was observed at an annualized rate of 3.4%, aligning with expectations.
In Canada, the performance of the Canadian dollar is contingent on the trajectory of oil prices, given Canada’s substantial role as an oil exporter to the United States. The Bank of Canada (BOC), in its decision last week, opted to maintain interest rates at 5%. BOC Governor Tiff Macklem underscored the bank’s aim to employ monetary policy to temper the economy and alleviate inflation pressures.
Turning to the economic calendar, the spotlight now shifts to the release of Canadian GDP data for August on Tuesday. Subsequently, market focus will shift to Canada’s S&P Global Manufacturing PMI for October, along with the U.S. ISM Manufacturing PMI, both set to be unveiled on Wednesday. The culmination of the week arrives with the Federal Reserve’s policy decision on Wednesday, with both Canada and the United States poised to release employment data on Friday. These events could potentially inject volatility into the market, steering the USD/CAD pair’s direction in the coming days.
