USD/CAD settles above 12-week low, posts weekly loss

The USD/CAD currency pair settled above recent low of 1.3753, its weakest level since September 17th, in the wake of the Federal Reserve’s and the Bank of Canada’s policy decisions.

The Fed lowered its federal funds rate target range by 25 basis points to 3.50%-3.75% at its December meeting, in line with market consensus. This way, borrowing costs were brought to their lowest level since 2022.

But, the vote was divided, as three FOMC members continued to vote against the rate reduction.

Stephen Miran voted in favor of a larger 50 bps cut, while Austan Goolsbee and Jeffrey Schmid voted for keeping interest rates on hold.

Fed Chair Jerome Powell said at the press conference that the central bank’s rate policy was well positioned to respond to whatever lies ahead for the economy. However, Powell did not offer any guidance on the timing of the next rate cut.

FOMC policy makers signaled just one 25 bps rate cut for next year, or the same projection as in September.

However, new signs of US labor market softness only added to investor expectations of two Fed interest rate cuts next year. US initial jobless claims rose by 44,000 to 236,000 during the week ending December 6th, exceeding market expectations. It has been the sharpest weekly rise since March 2020.

Meanwhile, the Bank of Canada kept its benchmark interest rate intact at 2.25% at its December 10th policy meeting, in line with market consensus.

GDP growth surprised to the upside, with economy expanding 2.6% in the third quarter, and the labor market improved, with the unemployment rate slipping to 6.5% in November.

Consumer inflation eased to 2.2% in October and policy makers judged measures of core inflation were still within the 2.5% to 3% range.

The BoC Governing Council said it viewed the current policy rate about right to keep inflation near 2%, while supporting the economy through this period of structural adjustment.

The major Forex pair lost 0.30% for the week.