USD/CAD hovers near 1.4100 as markets digest Fed remarks and mixed Canadian data

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The Canadian Dollar (CAD) holds steady against the US Dollar (USD) on Friday, with USD/CAD hovering near 1.4100 as the Greenback stages a rebound after briefly losing momentum on dovish comments from New York Federal Reserve (Fed) President John Williams.

USD/CAD steadies near 1.4100 as the US Dollar rebounds after an early dip triggered by dovish Fed commentary.
Fed’s John Williams signals room for a near-term cut, pushing December easing odds above 70%.
Canada’s Retail Sales fell 0.7% in September, matching expectations and reversing August’s 1% gain.

Fed Williams said he still sees room for a near-term rate cut, acknowledging that progress on inflation has stalled even though he expects price growth to return to the 2% target by 2027. He noted that economic activity has cooled and the labour market continues to ease gradually, with downside risks to employment becoming more pronounced.

Williams added that recent tariff measures have contributed to price pressures but are unlikely to generate sustained inflation. He also reiterated that monetary policy remains modestly restrictive.

Following his comments, rate-cut bets revived sharply. According to the CME FedWatch Tool, markets now assign nearly a 74% probability to a December rate cut, a sharp jump from roughly 31% earlier in the day.

Other Fed officials also weighed in, offering a mixed but generally cautious tone. Boston Fed President Susan Collins said she expects rates to come down over time but remains hesitant to move too quickly while inflation stays elevated, noting that policy is still “mildly to moderately” restrictive. Fed Governor Stephen Miran emphasized that policymakers should be “forecast-dependent rather than data-dependent” and said he would support a 25 basis-point cut if his vote were decisive.

Meanwhile, Dallas Fed President Lorie Logan argued that the Fed should keep rates steady for now to better gauge the degree of policy restraint, adding that it would be difficult to justify another cut in December. She also reiterated that inflation remains too high, even as the labour market trends toward a better balance.

In Canada, data released earlier on Friday showed Retail Sales fell 0.7% in September, matching the market forecast of a 0.7% decline and reversing the 1% gain in August. The drop was driven largely by a 2.9% slide in motor vehicle and parts dealers, led by a 3.6% fall in new car sales, according to Statistics Canada.

In volume terms, overall Retail Sales were down 0.8%. Retail Sales excluding autos rose 0.2%, coming in stronger than expectations for a 0.5% drop, though still down from the 0.8% increase recorded in August.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). 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 Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.