. USD/CAD rises on hawkish Fed, Bank of Canada holds rates - 05 April

USD/CAD rises on hawkish Fed, Bank of Canada holds rates – 05 April

USD/CAD rises on hawkish Fed, Bank of Canada holds rates – 05 April

05 Apr 2023

The USD/CAD pair surpasses the 1.3800 level due to the unchanged BoC policy.

  • The USD/CAD pair rose above the key resistance level of 1.3800 in early Asian trading, bolstered by the Bank of Canada’s decision to maintain its current monetary policy and hawkish comments from Federal Reserve Chair Jerome Powell during his congressional testimony.
  • Although S&P500 futures showed some signs of recovery, it was not enough to boost market participants’ risk appetite. Furthermore, the 10-year US Treasury yields fell below 4.0%.
  • The US Dollar Index experienced some volatility after the release of better-than-expected employment data from the Automatic Data Processing (ADP) agency.
  • The data showed that job openings rose to 10.824 million, beating the consensus forecast of 10.6 million, while 242,000 jobs were added in the US, higher than the expected 200,000. The strong labor market data suggests that inflation may remain elevated as demand for talent increases, leading to higher wages.
  • Fed Chair Powell reiterated that the Fed is prepared to increase the pace of interest rate hikes to bring inflation back to its 2% target, which has kept US Dollar bulls in control.
  • As expected, the Bank of Canada left interest rates unchanged, with Governor Tiff Macklem citing the current monetary policy as sufficient to control Canada’s sticky inflation. This was not surprising, as Macklem had already announced a pause in the policy tightening at the January meeting.
  • Oil prices declined further due to concerns over demand as the Fed’s hawkish interest rate guidance weighed on sentiment. It is worth noting that Canada is a major oil exporter to the US, and lower oil prices will impact the Canadian Dollar.