USD Strengthens as Fed Signals Rate Cuts, CAD Declines Amid Bank of Canada Speculation

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3650-1.3820

Euro                 1.4930-1.5130

Sterling            1.7880-1.8080

WTI Oil (opening level) $74.43

At 2 p.m. yesterday, the Federal Reserve released the minutes from the latest Federal Open Market Committee (FOMC) meeting, which resulted in a 50 basis point (bps) interest rate cut in the U.S. The minutes revealed discussions about the possibility of cutting only 25 bps instead of 50, with plans for two more cuts in 2024. The discussions also indicated a preference for a total cut of 75 bps in 2024. Upon release of the minutes, traders began to anticipate a higher-than-expected interest rate in the U.S., leading to the strengthening of the USD against the CAD, with the exchange rate moving above 1.37 for the first time in two months. This momentum carried into the next day, resulting in a significant increase.

Over the past week, the CAD has experienced a 2% decline. In the U.S., this is positive news for the markets, as recent jobs data (250,000 new jobs) and interest rates are expected to hold steady. Meanwhile, in Canada, the Bank of Canada is considering another 50 bps cut at its meeting on October 23, which may weaken the CAD further by creating an unattractive investment environment for global investors. As a result, the exchange rate could rise to 1.38. Historically, under previous Liberal governments, the CAD traded within a similar range of 1.37 to 1.39 for an extended period.