The Canadian Dollar takes its bid from Washington, as usual
- USD/CAD slides to a session low just above 1.4050 on the Federal Reserve hold, unwinding a grind that had the rate at the 1.4100 handle earlier in the session.
- The Chair's press conference at 18:30 GMT is the last forward-looking item on the day, with no projections attached to this meeting.
The hold arrived at 18:00 GMT on a 9-3 vote, the target range unchanged at 3.50% to 3.75% with three voting members preferring an immediate quarter-point increase. The Loonie took roughly 30 pips out of the rate on the headline, dragging it to a session low just above 1.4050 from a high at the 1.4100 handle. Nothing Canadian was involved in any of it, which is the pattern rather than the exception.
What moved is the expected gap rather than the posted one: a December Bank of Canada hike has been fully priced since the mid-July captures, and the Federal Reserve just refunded better than a third of a hike from this meeting. The briefing at 18:30 GMT can hand that back, since three dissents give the Chair a mandate to point at September, where pricing already carries roughly three-quarters odds of at least one increase.
USD/CAD 5-minute chart
Fed FAQs
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.
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.
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.
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.
