Canadian dollar edges higher as Fed pauses again

USD/CAD is steady on Thursday and is trading at 1.3720, down 0.14% at the time of writing.

Powell says inflation still too high to lower rates

The Federal Reserve kept the benchmark rate in the target range of 5.25% to 5.50% for a six straight time at the Wednesday meeting. Fed Chair Powell said that the Fed was not yet ready to lower rates, pointing the finger at high inflation. Consumer inflation has risen in each of the past two months, complicating the Fed’s battle to bring down inflation to the 2% target. The rate statement noted there had been “a lack of further progress” towards the 2% inflation target in recent months.

The Fed’s message, although by no means dovish, was less hawkish than the market had feared. Investors chose to focus on Powell’s comments that the next rate move was unlikely to be a cut and that he expected inflation to resume its downward path. US equity markets were sharply higher (albeit briefly) while the US dollar declined against the major currencies after the meeting. The Japanese yen soared 2% against the US dollar on Wednesday but the Canadian dollar could only muster slight gains of 0.3%.

The Bank of Canada is also looking to lower rates and Governor Macklem sounded confident that rate cuts were not far away. Macklem told a Senate banking committee on Wednesday that “we are getting closer” to lowering rates and that inflation was coming down. Inflation rose 2.9% in March, up from 2.8% a month earlier. There is speculation that the BoC could cut rates as soon as June, but that appears unlikely unless inflation moves significantly closer to the 2% target.

USD/CAD Technical

• USD/CAD tested resistance at 1.3742 earlier. Above, there is resistance at 1.3779
• 1.3700 and 1.3663 are providing support

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