USD/CAD ticks up to near 1.3850 in countdown to BoC-Fed monetary policy

The USD/CAD pair trades marginally higher to near 1.3855 during the Asian trading session on Wednesday. The Loonie pair is expected to trade broadly sideways as investors await monetary policy announcements by the Bank of Canada (BoC) and the Federal Reserve (Fed), which are scheduled for the North American session.

At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades flat around 99.25, following an upside move the previous day. The DXY attracted bids on Tuesday after the release of the surprisingly upbeat United States (US) JOLTS Job Openings data for October. The data showed that fresh jobs posted increased marginally to 7.67 million from 7.658 in September, while they were expected to come in lower at 7.2 million.

According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December policy meeting is 87.6%. This would be the third interest rate cut by the Fed in a row.

Assuming that the Fed is almost certain to ease interest rates further, the major highlight of the central bank’s monetary policy will be the Economic Projections report. The report will provide fresh estimates for inflation, growth and unemployment, and the Fed’s dot plot, which shows where policymakers collectively see Federal Funds Rate heading in the medium and longer term.

Meanwhile, the BoC is expected to hold interest rates steady at 2.25% amid signs that Canada’s labor market is regaining ground. In the September-November period, the Canadian economy has created 180.6K fresh jobs after releasing 106.3K workers in the July-August period. The Unemployment Rate has also fallen to 6.9% in November from 6.5% in October.

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).