On Wednesday, the Canadian Dollar (CAD) has dipped slightly against the US Dollar (USD), as investors eagerly anticipate the release of the Federal Open Market Committee (FOMC) Meeting Minutes at 18:00 GMT. The Federal Reserve (Fed) has remained steadfast in its decision to keep interest rates steady until inflation approaches its target of 2%, making the May meeting minutes a crucial factor in shaping futures expectations for monetary policy.
Currently, the USD/CAD pair is trading near 1.3823, facing resistance from the 20-day Simple Moving Average (SMA) at 1.3874. The US Dollar saw a boost on Tuesday after Consumer Confidence data showed a significant improvement in May, rising from 85.7 in April to 98. This, coupled with easing tensions between the European Union (EU) and the US and hawkish comments from Fed officials, has strengthened the case for USD/CAD bulls.
The divergence in interest rates remains a key driver of the pair’s strength. Recent Canadian data suggests that the Bank of Canada (BoC) may consider a rate cut in June, as headline inflation dropped to 1.7% in April and core inflation rose to 3.15%, above the BoC’s target. In contrast, the Fed is expected to maintain rates in June, with market signals indicating a 97.8% likelihood of the current 4.25% – 4.50% range remaining unchanged. The next rate cut is predicted for the September meeting.
The tone of the Fed Minutes could further impact market sentiment, particularly in anticipation of Friday’s release of the central bank’s preferred inflation measure, the Core Personal Consumption Expenditures (PCE) index. Any hawkish or dovish remarks in the minutes could significantly alter expectations, potentially influencing the next rate cut in September.