USD/CAD trims some of its early losses and hovers around 1.3580

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  • USD/CAD fell 80 points after the publication of the Fed’s decision.
  • Fed officials will consider earlier rate hikes, acknowledging that it would take some time for the effects of monetary policy to amplify.
  • Fed’s Powell: Officials project that the fed funds rate (Rate) would reach higher than estimated levels in September.

The USD/CAD slumps after the Federal Reserve hiked rates by 75 basis points. However, it was moderate, as officials said they would take into account “the accumulated adjustment of monetary policy” and acknowledged that the effects of the policy affect economic activity and inflation. At the time of this writing, the USD/CAD pair is trading around 1.3550 amid volatility following the FOMC decision.

Summary of the Federal Reserve Monetary Policy Statement

In its monetary policy statement, the Fed acknowledged that growth was slowing in spending and output and said labor market conditions remain “robust” and the unemployment rate is sluggish. Monetary policymakers added that inflation remains elevated, a reflection of supply-demand imbalances blamed on the pandemic and rising food and energy prices.

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While Fed officials have said they are determined to tame inflation and will continue to tighten monetary conditions, they have laid the groundwork for a slower pace of interest rate hikes. Fed officials added to the statement that “the Committee will take into account the accumulated tightening of the policy monetarythe lags with which monetary policy affects economic activity and inflation, and economic and financial developments“, which is initially perceived as recognizing that monetary policy is not reacting as quickly as expected, and that they would take it into account.

Regarding the reduction of the Fed’s financial balance, the monetary policy makers added that it would continue to be reduced as expected and added that the Federal Reserve Open Market Committee (FOMC) would depend on the data, taking into account the public health readings, labor market conditions, inflation pressures and inflation expectations.

USD/CAD Market Reaction

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USD/CAD fell from around 1.3630 towards 1.3560, reaching a daily low of 1.3548. However, Federal Reserve Chairman Jerome Powell said they would continue to tighten monetary conditions; USD/CAD erased some of its gains and is back around 1.3600.

USD/CAD 5 minute chart

Source: Fx Street

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