- USD/CAD extends its weekly rally to two consecutive days of gains, but is below the July 26 high of 1.2901.
- Positive market sentiment capped USD/CAD’s rally as investors brace for FOMC decision.
The pair USD/CAD remains almost sideways during the American session on Wednesday, as investors prepare for the decision of the Federal Reserve Open Market Committee (FOMC). The US central bank is expected to raise rates by 75 basis points, which is fully reflected in the 2-year US Treasury yield rising to 3.075%. Although it is a tailwind for the Loonie, the loonie is holding firm due to high oil prices. At the time of writing, the USD/CAD is trading at 1.2886.
USD/CAD trimmed losses despite upbeat sentiment, buoyed by positive data related to US growth.
Global stocks are trading higher, reflecting optimistic sentiment. US corporate earnings applauded by investors keep equities higher, but as the time for the Fed decision draws closer, sentiment could sour as traders brace for the Fed decision Meanwhile, the USD is holding firm, gaining 0.12% as DXY shows at 107320.
US economic data revealed that the 2nd quarter flash GDP data could be saved from releasing a contractionary reading. The US Department of Commerce reported that June Durable Goods Orders rose more than estimated, while the Balance of Trade deficit narrowed for the third month in a row. It is also worth noting that inventories are holding their pace despite growing concerns about a recession.
However, it was not all positive, as June pending home sales plunged 20% from -13.8% y/y on the back of higher interest rates. Fed officials have already expressed that they expected the housing market to slow as mortgage rates have doubled since early 2022, when the Fed began its tightening cycle.
On Wednesday, USD/CAD started trading around daily highs at 1.2884, but fell on rising oil prices. However, as the time for the Fed’s decision approaches, USD/CAD traders have started to reduce their exposure and prepare to assess the US central bank’s decision.
What must be considered
The Canadian economic calendar is empty. Meanwhile, in the US, the Fed’s monetary policy decision will be released around 18:00 GMT, followed by Fed Chairman Jerome Powell’s press conference. On Thursday, the second quarter GDP preview will confirm whether the US has entered a technical recession, although markets expect a jump from -1.5% in the first quarter to an expansion of 0.5%.
USD/CAD Key Technical Levels
Source: Fx Street
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