• USD/CAD eases as the Canadian Dollar steadies after the BoC interest rate decision.
• BoC leaves rates unchanged at 2.25%, signals readiness to act if needed amid geopolitical and trade uncertainty.
• US Dollar firms ahead of the Fed decision, limiting downside in the pair.

USD/CAD trims part of its earlier gains on Wednesday as the Canadian Dollar (CAD) finds some support following the Bank of Canada’s (BoC) monetary policy announcement. However, the pair lacks follow-through selling as the US Dollar (USD) firms ahead of the Federal Reserve’s (Fed) interest rate decision due at 18:00 GMT.

At the time of writing, the pair is trading around 1.3705. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading near 99.85, rebounding after two days of decline.

The BoC left its benchmark interest rate unchanged at 2.25%, maintaining the level seen since October. In the post-meeting press conference, Governor Tiff Macklem said, “We can raise rates if we see signs that energy prices are going to cause persistent inflation.” He added, “If energy prices come back down and we see more weakness in the economy, we can lower our policy rate.”

In his accompanying statement, Macklem highlighted ongoing uncertainty tied to US trade policy and geopolitical risks, while warning that the US-Israel war with Iran is pushing Oil prices higher and could lift inflation in the near term.

Macklem added that it is too early to assess the impact of the war on Canada’s economic growth. He noted that if higher Oil prices are sustained, they could support income from energy exports. However, he cautioned that elevated energy costs would also squeeze consumers, leaving them with less income for other spending.

He also said the Governing Council will look through the war’s near-term impact on inflation, but warned that if energy prices stay high, the Bank will not allow those effects to become persistent. He added that the Bank stands ready to respond as needed, as policymakers continue to assess the impact of US tariffs and trade policy uncertainty, while closely monitoring developments in the Middle East.

Focus now shifts to the Fed decision, with rates expected to remain unchanged at 3.50%-3.75% for a second straight meeting. Markets will closely watch the updated SEP, dot plot, and Fed Chair Jerome Powell’s press conference for clues on the monetary policy path amid an evolving inflation outlook.