Canadian Dollar retreats from six-week high as Fed and BoC interest rate decisions approach

After reaching a six-week low, USD/CAD recovers as the US Dollar strengthens, ending a seven-day run of losses.
With the Fed and BoC expected to diverge on policy, traders prepare for Wednesday's interest rate decisions.
Key US economic figures and Canada's GDP release are also in focus later this week.

Trading at around 1.4023 at the time of writing, USD/CAD has recovered from Friday's 1.3969 low, its weakest reading since 16 September. Monday's rebound ends seven consecutive days of losses as traders adjust positions before this week's monetary policy announcements from the Federal Reserve (Fed) and Bank of Canada (BoC).

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Having touched 101.45 last week, the US Dollar Index (DXY) has recovered to around 101.87. The index measures the Greenback against a basket of six major currencies.

Different policy outcomes are expected when the BoC and Fed deliver their interest rate decisions on Wednesday. A 25-basis-point increase is anticipated from the Canadian central bank, which would be its first rise since July 2023. The Fed, by comparison, is expected to hold rates steady following September's increase of 25 basis points.

Updated forecasts for growth and inflation will accompany the Canadian central bank's quarterly Monetary Policy Report. Governor Tiff Macklem recently warned that persistently elevated energy prices would prompt a significant upward revision to the BoC's inflation projections. As markets already expect a BoC rate rise and a Fed pause, policymakers' comments will be closely examined for indications of when, and how quickly, further interest rate increases might follow.

Monetary policy divergence between the Bank of Canada and its major peers leaves the Canadian Dollar “likely to receive some support from monetary policy, at least in the short term,” according to analysts at Commerzbank. Their economists, they add, “expect both the Fed and the ECB to tighten less than the market is currently pricing in.” For Canada, however, they argue that, “given the BoC’s recent hawkish comments, the risk of higher inflation expectations and the prospect of higher BoC inflation forecasts, the BoC could raise rates more than once by the end of next year,” pointing to a relatively more aggressive policy trajectory that could support CAD.

This week's economic calendar also offers key releases alongside the central bank decisions. Tuesday brings the US ADP Employment Change four-week average, Durable Goods Orders, Consumer Confidence and New Home Sales. The US Personal Consumption Expenditure (PCE) report, third-quarter Gross Domestic Product (GDP) and weekly Initial Jobless Claims follow on Thursday. Canada's August GDP figures are scheduled for Friday.

Canadian Dollar Records Its Strongest Gain Against the Yen Today

Today's percentage movements in the Canadian Dollar (CAD) against the major currencies listed are set out below. Its strongest performance was against the Japanese Yen.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.21%	0.15%	0.47%	0.15%	0.25%	0.32%	0.29%
EUR	-0.21%		-0.02%	0.25%	-0.08%	0.04%	0.12%	0.08%
GBP	-0.15%	0.02%		0.27%	-0.04%	0.06%	0.15%	0.10%
JPY	-0.47%	-0.25%	-0.27%		-0.32%	-0.23%	-0.16%	-0.19%
CAD	-0.15%	0.08%	0.04%	0.32%		0.09%	0.19%	0.15%
AUD	-0.25%	-0.04%	-0.06%	0.23%	-0.09%		0.09%	0.05%
NZD	-0.32%	-0.12%	-0.15%	0.16%	-0.19%	-0.09%		-0.03%
CHF	-0.29%	-0.08%	-0.10%	0.19%	-0.15%	-0.05%	0.03%

Percentage movements between the major currencies are displayed in the heat map. Select the base currency from the left-hand column and the quote currency from the top row. To read CAD (base)/USD (quote), for instance, choose the Canadian Dollar on the left and follow that row horizontally to the US Dollar column; the intersecting cell gives the percentage change for that pair.