- The USD/CAD is maintained by around 1,3770 in the first Asian session on Wednesday.
- The Fed is expected to maintain its key interest rate without changes
- The decisions on interest rates of the FED and the Boc will be the points highlighted later on Wednesday.
The USD/CAD pair quotes in a flat tone about 1,3770 during the first Asian session on Wednesday. The markets could become cautious later a day as operators prepare for the imminent decision on interest rates of the Bank of Canada (BOC) and the Federal Reserve of the USA (FED).
Bloomberg reported Tuesday night that US Treasury Secretary Scott Besent said that the US and China will continue the conversations about the maintenance of a tariff truce before the deadline in two weeks, and that US President Donald Trump will make the final decision on any extension. Commercial negotiations with China have been less true and this could undermine the US dollar (USD) against the Canadian dollar (CAD).
It is widely anticipated that the Fed maintains its key interest rate without changes in 4.25% to 4.5%, the same one that has been since December. According to the CME Fedwatch tool, FED fund operators are valuing almost 97% possibility that there are no changes in interest rates at the July meeting.
The operators expect the FOMC policy statement and the press conference of the president of the FED, Jerome Powell, then, since they could offer some clues about the perspectives of interest rates in the coming months. The cautious posture of Fed officials in the midst of tariff uncertainty could help limit dollar losses in the short term.
As for the Loonie, economists expect the BOC to maintain the policy rate at 2.75% at the July meeting later on Wednesday, a third consecutive pause. The Canadian Central Bank said its decisions would be “less prospective” due to several “layers of uncertainty” that surround the commercial war.
US interest rates – Frequently asked questions
Financial institutions charge interest rates on loans to borrowers and pay them as interest to savers and depositors. They influence the basic types of interest, which are set by central banks based on the evolution of the economy. Normally, central banks have the mandate to guarantee the stability of prices, which in most cases means setting as an objective an underlying inflation rate around 2%.
If inflation falls below the objective, the Central Bank can cut the basic types of interest, in order to stimulate credit and boost the economy. If inflation increases substantially above 2%, the Central Bank usually rises the interest rates of basic loans to try to reduce inflation.
In general, higher interest rates contribute to reinforce the currency of a country, since they make it a more attractive place for world investors to park their money.
The highest interest rates influence the price of gold because they increase the opportunity cost of maintaining gold instead of investing in an asset that accrues interest or depositing effective in the bank.
If interest rates are high, the price of the US dollar (USD) usually rises and, as gold quotes in dollars, the price of low gold.
The federal funds rate is the type to a day that US banks lend each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set at a fork, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the aforementioned figure.
Market expectations on the interest rate of the Federal Reserve funds are followed by the Fedwatch of the CME tool, which determines the behavior of many financial markets in the forecast of future monetary policy decisions of the Federal Reserve.
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.
