The USD/CAD pair has rebounded to around 1.3730 in the early Asian trading session on Thursday, supported by a stronger US Dollar. This comes after the Federal Open Market Committee (FOMC) decided to keep interest rates unchanged for the seventh consecutive time during its June meeting on Wednesday.
Following the FOMC announcement, there has been renewed demand for the US Dollar as investors reacted to the central bank’s hawkish stance. Fed Chair Jerome Powell mentioned during a press conference that while monetary policy remains restrictive, the central bank is closely monitoring inflation data before making any further decisions.
Investors in the USD/CAD pair will be monitoring key economic events scheduled for later on Thursday. This includes the US weekly Initial Jobless Claims, Producer Prices Index (PPI), and a speech by Fed’s John Williams. These events could provide further insight into the future direction of the currency pair.
On the Canadian front, Bank of Canada (BoC) Governor Tiff Macklem has indicated that there is a limit to how much the Canadian central bank can diverge on interest rates from the Federal Reserve. Despite this, Macklem mentioned that they are not close to reaching that limit at the moment. The BoC recently lowered its benchmark rate by 25 basis points to 4.75% last week.
Market participants have already factored in nearly 150 basis points of additional rate cuts by the Bank of Canada over the next few years. This reflects the uncertain economic outlook and the need for monetary stimulus to support growth in the Canadian economy. Overall, the future trajectory of the USD/CAD pair will be influenced by a combination of domestic and international factors, including central bank policies and economic data releases.