USD/CAD hovers around 1.2930s on Powell’s presser post-Fed 0.75% rate hike

• The US Federal Reserve decided to hike 75 bps, greatly influenced by last Friday’s hot 8.6% CPI reading.
• Fed Chair Powell does not expect moves of 75 bps to be common; the USD/CAD plunged from 1.2995 to 1.2915 as a reaction.
• The US central bank expects to cut rates by 40 bps in 2024.

The USD/CAD is erasing earlier gains after the Federal Reserve released its monetary policy statement and peaked at 1.2995. However, is nosediving once the Federal Reserve Chair Jerome Powell, at his presser, stated that he does not expect moves of 75 bps to be common but opened the door for the July meeting of raising rates in the 50-75 bps range. At the time of writing, the USD/CAD is seesawing in the 1.2920-40 range.

The Federal Reserve Chair Jerome Powell reiterated at the press conference that ongoing increases are appropriate and emphasized that the labor market is extremely high and inflation too. Powell commented that when May inflation surprised to the upside alongside inflation expectations elevating, the FOMC decided that 75 bps was warranted in response.

Summary of the FOMC monetary policy statement

The Fed reiterated that it is committed to returning inflation to its 2% target. They added that economic activity picked up after the negative print in the first quarter. Furthermore, the Fed would continue to reduce its balance sheet as planned in the May meeting.

The FOMC added that “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”

Additionally, in the same meeting, the Federal Reserve Open Market Committee (FOMC) unveiled the Summary of Economic Projections (SEP), which showed that the Fed reduced its expectations for growth from 2.8% in March to 1.7%, while the unemployment rate would uptick to 3.7% from 3.5% projected in March.

Concerning their outlook about inflation, Fed policymakers estimate the Core PCE at 4.3%, more than the 4.1% foreseen in March, while the Federal Funds Rate by the end of 2022 is estimated to increase to 3.4%, 150 bps more elevated than the 1.9% projected in March.

It’s worth noting that the Federal Reserve expects another 50 bps hike in 2023, and then in 2024 would be the first-rate cut

USD/CAD 1-hour chart

Key Technical Levels