USD/CAD trades volatile tests the 20-day EMA after FOMC’s decision

• USD/CAD collapsed below the 1.3700 figure, trades volatile in the 1.3670-1.3740 range.
• The Federal Reserve raised rates by 25 bps, as expected by analysts.
• Traders eyed the Federal Reserve Chair Jerome Powell’s press conference.

The USD/CAD collapsed toward its daily lows at 1.3678 after the US Federal Reserve decided to lift rates by 25 bps. The so-called dot-plot was almost unchanged compared to December’s Summary of Economic Projections (SEP), meaning another 25 bps increase is expected. Therefore, the USD/CAD is trading volatile, around 1.3680-1.3720, ahead of the Fed Chair Powell press conference.

Fed’s monetary policy decision

In their decision, Federal Reserve officials decided to raise rates by a quarter percentage point and acknowledged the recent turmoil in the financial markets, which caused the collapse of two regional banks. Though, the US central bank commented that the US banking system is solid and resilient

Aside from this, the monetary policy statement was in line with expectations, with the Fed emphasizing that inflation is too high and that the labor market is too tight. In addition, the balance sheet reduction would continue as planned in May, reiterating that the Committee “is strongly committed to returning inflation to its 2 percent objective.”

Nevertheless, it should be said that the phrase “ongoing increases as appropriate” was removed from March’s monetary policy statement.

Fed’s Summary of Economic Projections

The Summary of Economic Projections (SEP) has remained largely the same, with little change. The dot plots, which represent the interest rate projections of Federal Reserve officials, have remained at 5.10%. The expected Real GDP for this period has been revised slightly downward from 0.5% to 0.4%, while the predicted Unemployment Rate has been modified slightly upward from 4.5% to 4.6%. The preferred inflation gauge of the Federal Reserve, the core PCE, is expected to be 3.6%, up from 3.5% in December’s SEP report. Meanwhile, headline inflation is estimated at 3.3%, up from 3.1% in the previous SEP report.

USD/CAD reaction to the headline

The USD/CAD collapsed toward its daily low at 1.3678, beneath the daily pivot point at 1.3700. A further fall below the S1 daily pivot at 1.3658 would pave the way toward the 1.3600 figure, but firstly the USD/CAD needs to crack the March 21 daily low at 1.3643. Once that happens, 1.3600 is up for grabs.