USD/CAD declines towards 1.3400 on Fed Powell’s less-hawkish commentary

• USD/CAD has expected to decline further to near 1.3400 as Fed sees a slowdown in the rate hike pace.
• S&P500 has displayed a juggernaut rally, portraying a stellar improvement in investors’ risk appetite.
• A significant jump in oil prices amid multiple tailwinds has strengthened the Canadian Dollar.

The USD/CAD pair plunged to near 1.3430 in the early Asian session after the Federal Reserve (Fed) chair Jerome Powell delivered a less-hawkish commentary on interest rate guidance. The loonie asset has shown a vertical decline from above 1.3550 and is expected to deliver more losses toward the round-level support of 1.3300 amid sheer weakness in the US Dollar Index (DXY).

The USD Index has printed a fresh three-day low at 105.80 as Fed Chair has confirmed a deceleration in the rate hike pace from December monetary policy meeting. Less-hawkish commentary from Fed Chair is backed by a surprise decline in October’s inflation report. Also, a slowdown in economic activities and moderation in labor growth indicate that inflation will dwindle further in the coming months.

S&P500 has displayed a juggernaut rally, portraying a stellar improvement in investors’ risk appetite. The returns on US Treasury bonds have witnessed a bloodbath. The 10-year US Treasury yields have dropped to near 3.60%.

Apart from that, the catalyst that has led to a significant fall in the US Dollar is the weak United Stated Automatic Data Processing (ADP) Employment data. According to the ADP Employment, the US economy has added 127K fresh jobs in the labor market, lower than the expectations of 200K and the prior release of 239K. Evidence of a slowdown in employment generation is going to weigh immensely on the inflation rate ahead.

Meanwhile, the Canadian Dollar has got an adrenaline rush on solid gains in oil prices. Extreme drawdown in oil inventories reported by the US Energy Information Administration (EIA), Russia’s denial of providing oil at a novel price cap, and chances of sheer production cuts by OPEC+ have participated in strengthening oil prices.