Six-week high: Canadian Dollar retreats ahead of Fed, BoC interest rate decisions

USD/CAD recovers from a six-week low. A firmer US Dollar ends the pair’s seven-day run of declines.
Diverging policy outcomes are expected as traders prepare for Wednesday’s Fed and BoC decisions.
Key US economic indicators and Canadian GDP figures are also on traders’ radar for later this week.

USD/CAD trades near 1.4023 at the time of writing. Monday’s recovery ends seven consecutive days of losses as traders adjust positions before this week’s monetary policy announcements from the Federal Reserve (Fed) and Bank of Canada (BoC). The pair fell to 1.3969 on Friday, its lowest since 16 September.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Having rebounded from last week’s low of 101.45, the US Dollar Index (DXY) stands near 101.87. The index measures the Greenback against a basket of six major currencies.

Wednesday brings interest rate decisions from both the BoC and Fed, with policy expected to diverge. A 25-basis-point increase is anticipated from the Canadian central bank, which would be its first hike since July 2023. The Fed, by comparison, is expected to hold rates steady following a 25 basis points increase in September.

Updated growth and inflation forecasts will accompany the Canadian central bank’s quarterly Monetary Policy Report. Persistently elevated energy prices would prompt a significant upward revision to inflation projections, BoC Governor Tiff Macklem recently said. A BoC hike and a Fed pause are already anticipated by markets. Policymakers’ comments will therefore be closely examined for indications of when further rate increases might come and how quickly they could proceed.

Monetary policy divergence between the Bank of Canada and its major peers could benefit CAD, according to analysts at Commerzbank. They argue that the Canadian Dollar is “likely to receive some support from monetary policy, at least in the short term,” and note that their economists “expect both the Fed and the ECB to tighten less than the market is currently pricing in.” Their contrasting assessment of Canada is that, “given the BoC’s recent hawkish comments, the risk of higher inflation expectations and the prospect of higher BoC inflation forecasts, the BoC could raise rates more than once by the end of next year,” pointing to a relatively more aggressive policy trajectory that could support CAD.

This week’s economic calendar also offers key releases beyond the central bank decisions. Tuesday’s US data include the ADP Employment Change four-week average, Durable Goods Orders, Consumer Confidence and New Home Sales. The focus shifts on Thursday to the US Personal Consumption Expenditure (PCE) report, third-quarter Gross Domestic Product (GDP) and weekly Initial Jobless Claims. Canada’s August GDP figures follow on Friday.

Canadian Dollar: Today’s Currency Performance

Today’s percentage moves in the Canadian Dollar (CAD) against the major currencies listed appear in the table below. The Japanese Yen was the currency against which the Canadian Dollar performed most strongly.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.21%	0.15%	0.47%	0.15%	0.25%	0.32%	0.29%
EUR	-0.21%		-0.02%	0.25%	-0.08%	0.04%	0.12%	0.08%
GBP	-0.15%	0.02%		0.27%	-0.04%	0.06%	0.15%	0.10%
JPY	-0.47%	-0.25%	-0.27%		-0.32%	-0.23%	-0.16%	-0.19%
CAD	-0.15%	0.08%	0.04%	0.32%		0.09%	0.19%	0.15%
AUD	-0.25%	-0.04%	-0.06%	0.23%	-0.09%		0.09%	0.05%
NZD	-0.32%	-0.12%	-0.15%	0.16%	-0.19%	-0.09%		-0.03%
CHF	-0.29%	-0.08%	-0.10%	0.19%	-0.15%	-0.05%	0.03%

Percentage movements between major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the Canadian Dollar on the left and following its row across to the US Dollar gives the percentage change for CAD (base)/USD (quote) in the corresponding cell.