USD/CAD hovers above 6 1/2-week low, focus on Fed and BoC

The USD/CAD currency pair hovered above a 6 1/2-week low of 1.3618 on Monday ahead of the outcome of the Federal Reserve’s and the Bank of Canada’s policy meetings.

The Fed is largely expected to leave its federal funds rate target range intact at 3.50%-3.75% at its April 28th-29th meeting, following three successive rate cuts last year.

The vast majority of FOMC policy makers judged that upside risks to inflation and downside risks to employment were elevated, while many officials noted these risks had risen with developments in the Middle East, the minutes from the Fed’s March meeting showed.

A prolonged confrontation in the Middle East would likely trigger more persistent increases in energy prices, while these higher input costs would be more likely to pass through to core inflation.

Investors will also be paying close attention to the press conference with Fed Chair Jerome Powell for clues over the timing of future interest rate cuts.

FOMC policy makers had signaled one rate cut for this year and another one in 2027.

Meanwhile, the Bank of Canada is expected to keep its benchmark interest rate intact at 2.25% at its April 29th policy meeting.

In March, BoC policy makers acknowledged increasing downside risks to growth, while warning that inflation risks are rising, largely driven by elevated energy prices.

The key takeaway from the March decision was the removal of prior guidance suggesting that the current policy stance was appropriate. This change signaled that the central bank was now open to further tightening if inflation pressures persist.

BoC officials indicated they might look through the immediate inflation impact of geopolitical developments, but emphasized that sustained high energy prices would not be allowed to feed into broader and more persistent inflation.

The USD/CAD currency pair was last down 0.31% on the day to trade at 1.3622.