The USD/CAD bulls maintain control prior to the Fed's decision

The Canadian currency remained mostly unchanged after Bank of Canada (BoC) Governor Tiff Macklem stated that he anticipates the policy rate will need to climb further. At the time of writing, the USD/CAD exchange rate is 1.3628 after ranging between 1.3622 and 1.3635.

Governor Macklem stated that a widespread drop in price pressures has not yet occurred and that there are no straightforward solutions for restoring price stability. In the meantime, the Bank of Canada has already slowed the pace of its tightening as of last week's interest rate announcement.

In recent statistics, industry-level Gross Domestic Product surprised to the upside with a 0.1% MoM gain for August, slightly over market expectations but, as analysts at TD Securities highlighted, "hardly scorching and Q3 GDP is still tracking in line with Bank of Canada predictions (after revisions). While this report was encouraging, it will not be enough to break the Bank's conviction that the outlook has worsened, and we continue to forecast for a lower 25bp raise in December.''

As the Federal Reserve is anticipated to announce a slower rate of tightening at its forthcoming meeting, the US dollar slumped versus major currencies on Tuesday. It is largely anticipated that the Federal Reserve would raise its overnight lending rate by 75 basis points (bps) to a range of 3.75 to 4.00 percent, the fourth consecutive hike. However, for December, the fed funds futures market has priced in a 57% probability of a 50-bps increase amid suggestions from Fed officials of a probable slowing in the tightening pace. This is lower than around a 70% possibility from last Friday. The US dollar index has increased by more than 15% this year, but it has recently begun to print lower daily highs in response to statements and interviews by Fed members indicating that the central bank may implement fewer rate hikes following Wednesday's meeting.