USD/CAD edges lower and breaks below 1.2750 pre-FOMC decision

• The Loonie advances some 0.30% vs. the greenback amid an increased risk appetite.
• Discussions between Russia-Ukraine would continue, though fighting remains.
• Canadian inflation approaches the 6% threshold, while US Retail Sales moderate.

USD/CAD slides for the second straight day in the week, ahead of the FOMC monetary policy decision amid a risk-on market mood, as geopolitical jitters around Russia-Ukraine appear to abate. However, of late, a contradiction between newswires keeps traders on their toes, weighing the outcome in Eastern Europe after a three-week war so far. At press time, the USD/CAD is trading at 1.2725, down 0.33%.

In tone with a positive market sentiment, European and US equity indexes keep trading in the green. In contrast, the CBOE Volatility Index (VIX), the so-called fear index, fell below the 28 mark for the first time since February 25, signaling increased investor appetite for riskier assets.

The US Dollar Index, a gauge of the greenback’s value vs. six rivals, is down 0.50%, sitting at 98.56, ahead of the Federal Reserve monetary policy meeting.

Discussions between Russia-Ukraine “appear” to improve

Earlier in the day, sources cited by the Financial Times said that Russia and Ukraine had made significant progress towards a potential 15-point peace plan that would include a ceasefire and Russian withdrawal from Ukraine. The deal includes that Ukraine would not join NATO and would not host foreign military bases. However, of late, Ukraine has reportedly rejected Russian claims that it was open to adopting a neutrality model comparable to Sweden in peace talks, reported the Independent on Wednesday.

The USD/CAD barely moved to those newswires; instead, traders were focused on the Canadian and US economic dockets. In Canada, inflation rose by 5.7%, higher than the 5.5% y/y estimated by analysts, while the so-called core, which excludes volatile items, rose by 4.8%, more than the 4.5% foreseen.

Canadian inflation approaches the 6% threshold, and US Retail Sales moderate in February

In the US docket, Retail Sales for February increased moderately, coming at 0.3% vs. 0.4% m/m. Sales excluding autos rose by 0.2%, lower than the 0.9% m/m. Noteworthy that data for January was revised higher to show sales surging 4.9% instead of 3.8% as previously reported.

Late in the day, the Federal Reserve would unveil its monetary policy decision. Market players expect a 25 basis point increase and look forward to the dot-plot, which could guide subsequent rate hikes. Noteworthy, what would the FOMC say about the balance sheet reduction due to the ongoing conflict in Eastern Europe, so traders need to be aware of this.