USD/CAD Surpasses 1.3460 Due To The Fed's Hawkish Posture And Renewed USD Demand

During Thursday's early Asian session, the USD/CAD extends its gains and trades in positive territory for the second consecutive session. The pair's recovery is supported by the Federal Reserve's (Fed) hawkish posture after its policy meeting on Wednesday and the revised interest rate forecasts for 2024. The pair is currently trading near 1.3485, up 0.18 percent for the day.

As expected by the market, the Federal Reserve (Fed) left interest rates unchanged at 5.25-5.50% at its September meeting. Officials are gaining confidence in their ability to reduce inflation without impairing the economy or causing significant job losses.

Fed Chairman Jerome Powell reaffirmed the Fed's commitment to attaining 2% inflation in a press conference. He added that maintaining rates is not indicative of the Fed's policy posture and that the US central bank is prepared to raise rates if necessary. According to the Fed's most recent quarterly forecasts, the benchmark overnight interest rate may be raised one more time this year to a maximum range of 5.50% to 5.75%, and rates may be substantially tighter through 2024 than previously anticipated.

In addition, the Federal Reserve revised its Summary of Projections (SEP), indicating that Fed officials now expect the interest rate to reach 5.1% by the end of 2024 (up from 4.6% previously). The narrative of higher rates for an extended period of time has propelled the US Dollar against its competitors and functions as a tailwind for the USD/CAD pair.

On the Canadian dollar front, the decline in oil prices has weakened the commodity-linked Canadian dollar, as Canada is the leading oil exporter to the United States. The Canadian Consumer Price Index (CPI) in August increased to 4.0% YoY from 3.3% in July, according to data released on Tuesday. Meanwhile, the core CPI, which excludes volatile energy and food prices, increased from 3.2% to 3.3% annually. These numbers could persuade the Bank of Canada (BoC) to increase interest rates even further.

Sharon Kozicki, Deputy Governor of the Bank of Canada, stated in a speech following the release of the data that the ups and downs of recent months are not that unusual, which is why the central bank focuses on measures of core inflation.

Thursday will see the release of the US weekly Jobless Claims, the Philadelphia Fed, and Existing Home Sales. Friday will see the publication of the preliminary US S&P Global PMI for September and Canadian Retail Sales for July. Traders will take cues from these data and identify USD/CAD trading opportunities.