Ella 
During early trading in Asia on Thursday, USD/CAD continued its upward trend and traded in the positive zone for the second consecutive day. USD/CAD’s rebound was supported by the Federal Reserve’s maintenance of a hawkish stance after Wednesday’s policy meeting and a revision of its 2024 interest rate forecasts. USD/CAD is currently trading around 1.3485, with an intraday increase of 0.18%.
At the September Federal Reserve meeting, the Federal Reserve (FED) kept interest rates unchanged at 5.25-5.50%, in line with market consensus. Fed officials are increasingly confident they can lower inflation without disrupting the economy or causing massive job losses.
At a news conference, Fed Chairman Jerome Powell reiterated the Fed’s commitment to achieving 2% inflation. Fed Chairman Jerome Powell added that maintaining interest rates does not indicate the Fed’s policy stance and that the Fed is ready to raise interest rates if necessary. According to the Fed’s most recent quarterly forecast, the benchmark overnight rate is likely to increase interest rates once more this year, reaching a peak range of 5.50% to 5.75%, and rates in 2024 may be significantly tighter than previously expected.
In addition, the Federal Reserve revised its Summary of Projections (SEP), indicating that Fed officials expect interest rates to reach 5.1% by the end of 2024 (previously 4.6%). This “higher interest rates for longer” narrative has boosted the USD against major currency pairs and acted as a “tailwind” for the USD/CAD pair.
In the Canadian dollar, lower oil prices weighed on the commodity-linked currency as Canada is a major oil exporter to the United States. Data released on Tuesday showed that Canada’s consumer price index surged to an annual rate of 4.0% in August from 3.3% in July. Meanwhile, core inflation, which excludes volatile oil and food prices, rose to 3.3% from 3.2% previously. The data could convince the Bank of Canada (BOC) to raise interest rates further.
Sharon Kozicki, deputy governor of the Bank of Canada, said in a speech after the data was released that it is not unusual for inflation to have highs and lows in the past few months, which is why the central bank focuses on core inflation indicators.
Looking ahead, Thursday will see weekly U.S. jobless claims data, the Philadelphia Fed and existing home sales. Preliminary U.S. S&P Global Purchasing Managers’ Index data for September and Canadian retail sales for July will be released on Friday. Traders will look to this data for USD/CAD trading opportunities.
