- The governor of the Bank of Canada, Tiff Macklem, could change the perspective of the CAD with comments on tariffs, risks of inflation and economic momentum.
- The Canadian dollar remains vulnerable with the focus on the divergence of monetary policy.
- Fed projections and Powell’s tone can influence the direction of the dollar and bets on a rate cut in September.
The Canadian dollar (CAD) is being stable in front of the US dollar (USD) on Wednesday, since the markets adopt a cautious tone before the meeting of the Federal Open Market Committee (FOMC) of the Federal Reserve (FED).
At the time of writing, the USD/CAD remains stable in the simple mobile average (SMA) of 10 days of 1,3651, with a volatility that is expected to increase as the operators digest the latest economic data from the USA and expect comments from the Fed and the Bank of Canada (BOC).
The economic figures published above in the session point to a moderation in the US growth momentum The beginnings of housing construction in May fell 9.8% to 1,256 million, being below expectations. Initial unemployment applications were recorded in 245,000, while continuous requests were at 1,945 million, indicating a gradual softening in labor market conditions. These data collectively reinforce the argument in favor of a cautious approach to politics by the Fed.
The Fed will publish updated projections, Powell’s tone is key
The FOMC is expected to maintain interest rates without changes in 4.25% –4.50% when you announce your decision at 18:00 GMT.
However, the attention of investors will focus on the updated economic projections (SEP) and the revised points graph, which will delineate how FED officials see the way for inflation, growth and rates in the coming months.
According to the CME Fedwatch tool, the markets currently assign a 58% probability to a rate cut in September, reflecting softer inflation and a deceleration demand.
The tone of the president of the Fed, Jerome Powell, at the press conference after the decision will be critical. If President Powell expresses confidence that inflation is decreasing and minimizes external risks, could strengthen the expectations of feat cuts, offering a modest support to the Canadian dollar.
However, if persistent uncertainty about tariffs stands out and the possible inflationary impact of Israel-Iran conflict, it could justify maintaining the highest rates for longer, supporting the US dollar and taking the USD/CAD to higher levels.
The speech of the governor of Boc could guide the perspective of Canadian rates
The attention will also focus on the governor of the Bank of Canada, Tiff Macklem, who is scheduled to speak at the St. John’s Board of Commerce at 15:30 GMT.
It is anticipated that the speech of Governor Tiff Macklem addresses three relevant central themes for Canada’s economic perspective.
First, it is likely to examine the risks of the tariffs imposed by the US, particularly their impact on Canadian exporters and trade -sensitive industries.
Secondly, Macklem is expected to evaluate the wider labor market and economic momentum, especially in the middle of the recent soft growth indicators.
Finally, the markets will closely follow their comments on the dynamics of inflation, specifically if the recent decrease in price pressure is sustainable or if additional adjustments may be necessary in monetary policy.
This happens after Macklem issued his warning of “clear and present danger” during the Boc policy announcement and the press conference on June 4.
The operators will be observing both Powell and Macklem in search of clues about the trajectory of interest rates. Their comments could make the USD/CAD move sharply as the divergence of policies and global risks continue to be key drivers.
FAQS Central Banks
Central banks have a key mandate that consists in guaranteeing the stability of prices in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant decrease in the prices of the same goods means deflation. It is the Central Bank’s task to keep the demand online by adjusting its interest rate. For larger central banks, such as the US Federal Reserve (FED), the European Central Bank (ECB) or the Bank of England (BOE), the mandate is to maintain inflation about 2%.
A central bank has an important tool to raise or lower inflation: modify its reference interest rate. In precommunicated moments, the Central Bank will issue a statement with its reference interest rate and give additional reasons of why it maintains or modifies it (cut it or the SUBE). Local banks will adjust their savings and loan rates accordingly, which in turn will make it difficult or facilitate that citizens obtain profits from their savings or that companies ask for loans and invest in their businesses. When the Central Bank substantially rises interest rates, there is talk of monetary hardening. When it reduces its reference rate, it is called monetary relaxation.
A central bank is usually politically independent. The members of the Central Bank Policy Council go through a series of panels and hearings before being appointed for a position in the Policy Council. Each member of that council usually has a certain conviction on how the Central Bank should control inflation and the consequent monetary policy. Members who want a very flexible monetary policy, with low types and cheap loans, to substantially boost the economy, while comprising with inflation slightly greater than 2%, are called “pigeons.” Members who prefer higher types to reward savings and want to control inflation at all times are called “hawks” and will not rest until inflation is located at 2% or just below.
Normally, there is a president who directs each meeting, has to create a consensus between the hawks or the pigeons and has the last word when the votes must be divided to avoid a draw to 50 on whether the current policy must be adjusted. The president will pronounce speeches, which can often be followed live, in which he will communicate the current monetary position and perspectives. A central bank will try to boost its monetary policy without causing violent oscillations of the fees, the actions or their currency. All members of the Central Bank will channel their position towards the markets before a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, the members are prohibited from speaking publicly. It is what is called a period of silence.
staying stable in the simple mobile average (SMA) of 10 days of
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
