USD/CAD climbs as Fed signals 5% in 2024, amid Powell’s hawkish remarks

• USD/CAD remains volatile, trading between 1.3400 and 1.3450, following the Fed’s decision to keep rates unchanged.
• Fed’s upward revision of 2024 interest rates to 5.1% and commitment to tackle inflation keep traders on their toes.
• Fed Chair Powell’s comments on high energy prices and consumer spending justified the need for higher rates.

The US Dollar (USD) erased its losses against the Canadian Dollar (CAD) after the Federal Reserve decided to keep rates unchanged but revise interest rate expectations for 2024. Nevertheless, the USD/CAD remains trading with slim gains and trades volatile at around 1.3400/1.3480 during the last hour.

USD/CAD trades in a wide 1.3400/1.3480 range as markets digest Fed’s rate projections and Powell’s comments

As expected, the Fed kept rates at the current 5.25%-5.50% range, emphasizing that “Inflation remains elevated” while acknowledging that economic activity is expanding at a solid pace and the labor market remains strong. However, what moved the markets was that the Fed kept rates for 2023 at the same level as projected in June at 5.6% while revising 2024 from 4.6% to 5.1%, according to the Summary of Economic Projections (SEP).

In his press conference, Fed Chair Jerome Powell reiterated the Fed’s commitment to bring inflation toward its 2% target and added that keeping rates unchanged doesn’t mean the Fed has or hasn’t reached the stance of policy they’re seeking while stressing the US central bank is ready to raise rates further if appropriate.

In regards to high energy prices, he said that higher energy prices are significant and can affect inflation. He added that growth has been propelled by consumer spending, which consequently came stronger than expected, which justifies the need for higher rates.

USD/CAD reaction to the Fed’s decision

The USD/CAD reacted upwards to the Fed’s monetary policy statement but halted its advance at around 1.3440. Nevertheless, as shown by the hourly chart, the major resumed its uptrend and turned positive in the day, with buyers eyeing the 1.3450 mark, ahead of testing 1.3500.

USD/CAD Price Action – Hourly chart

USD/CAD Key Technical Levels