The Canadian dollar is showing some strong resilience today as oil and risk trades bounce back ahead of the FOMC decision. USD/CAD is down 80 pips on the day to 1.3302 and that brings it right back to where it closed last week.
The Bank of Canada is now in a static position as it pledged to keep rates on hold while it evaluates how the economy is responding to a 4.50% overnight rate.
The Fed is continuing to probe the upside and has forecast to bring rates to 5.00-5.25% via the dotplot, though the market implies a peak at 4.91% in June.
For the next few months, USD/CAD could be stuck in a tug of war. Poor economic news will weigh on US rate expectations but it also has negative implications for global growth. Good economic news will boost the US dollar and rate hike implications but also lift the loonie on better global growth.
On net, global growth will be more important to the Canadian dollar so long as it doesn't come with a worrisome dose of inflation.
On net, the whole market is also dealing with month end flows today in what was a volatile month of trading. With the loonie strongly outperforming both AUD and NZD, I'm cautious on its prospects in the day ahead.
