- The USD/CAD quotes with slight profits around 1,3830 in the early Asian session on Thursday.
- The Fed maintained its key reference rate without changes in the July policy meeting.
- The Canada Bank maintains the interest rate at 2.75%, as expected widely.
The USD/CAD pair records modest advances about 1,3830 during Thursday’s Asian negotiation hours. The US dollar (USD) advances against the Canadian dollar (CAD) after the Federal Reserve (FED) left US interest rates without changes and pointed out that the US Central Bank is not ready to cut rates.
The Fed decided to maintain its federal fund rate in a range of 4.25% -4.5% at its July meeting on Wednesday, as expected widely. The president of the FED, Jerome Powell, declared after the policy meeting that the US Central Bank “has not made decisions” about a possible policy change in September, and can take time to evaluate the effect of tariffs on consumer prices.
In addition, US economic data stronger than expected contribute to the progress of the dollar. The data published by the US Economic Analysis Office on Wednesday showed that the US gross domestic product (GDP) expanded at an annual 3.0% rate for the period from April to June. This figure followed the contraction of 0.5% in the first quarter and was stronger than the expectation of 2.4%.
As for the Loonie, the Bank of Canada (BOC) left its interest rate without changes in 2.75% on Wednesday, citing resilience in the economy despite the global commercial war on the way caused by the US by the US, the governor of the BOC, TIFF MACKLEM, made moderate comments, saying that the door remains open to the reduction of rates in the future if necessary. This could weigh on the CAD and create a tail wind for the short term.
The attention will focus on the US employment report for July, which will be published later on Friday. The US economy is expected to add 110K jobs in July, while it is projected that the unemployment rate will increase to 4.2% from 4.1% during the same period. The publication of non -agricultural payroll (NFP) better than expected could boost the dollar.
Fed – Frequently Questions
The monetary policy of the United States is directed by the Federal Reserve (FED). The Fed has two mandates: to achieve prices stability and promote full employment. Its main tool to achieve these objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the objective of 2% set by the Federal Reserve, it rises interest rates, increasing the costs of loans throughout the economy. This translates into a strengthening of the US dollar (USD), since it makes the United States a more attractive place for international investors to place their money. When inflation falls below 2% or the unemployment rate is too high, the Federal Reserve can lower interest rates to foster indebtedness, which weighs on the green ticket.
The Federal Reserve (FED) celebrates eight meetings per year, in which the Federal Open Market Committee (FOMC) evaluates the economic situation and makes monetary policy decisions. The FOMC is made up of twelve officials of the Federal Reserve: the seven members of the Council of Governors, the president of the Bank of the Federal Reserve of New York and four of the eleven presidents of the regional banks of the Reserve, who exercise their positions for a year in a rotary form.
In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). The QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non -standard policy measure used during crises or when inflation is extremely low. It was the weapon chosen by the Fed during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy high quality bonds of financial institutions. The one usually weakens the US dollar.
The quantitative hardening (QT) is the inverse process to the QE, for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the bonds that it has in portfolio that they expire, to buy new bonds. It is usually positive for the value of the US dollar.
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.
