USD/CAD climbs above 1.3460 amid Fed's hawkish stance, renewed USD demand

• USD/CAD gains traction around 1.3485 amid the renewed USD demand.
• The Federal Reserve (Fed) maintained interest rates and indicated a possible further hike before year-end.
• A decline in oil prices exerts pressure on the Canadian Dollar (CAD).
• Market players await US weekly Jobless Claims, Canadian Retail Sales due later this week.

The USD/CAD extends its upside and trades in positive territory for the second consecutive day during the early Asian session on Thursday. The rebound in the pair is supported by the hawkish stance of the Federal Reserve (Fed) after its policy meeting on Wednesday and the revised interest rate expectations for 2024. The pair currently trades near 1.3485, gaining 0.18% on the day.

At its September meeting, The Federal Reserve (Fed) kept interest rates unchanged at 5.25-5.50% as widely expected in the market. Officials are becoming more confident that they could lower inflation without harming the economy or causing major job losses.

In a press conference, Fed Chairman Jerome Powell reaffirmed the Fed's commitment to achieving 2% inflation. He added that maintaining rates does not indicate the Fed's policy stance, and the US central bank is ready to raise rates if necessary. According to the Fed's most recent quarterly predictions, the benchmark overnight interest rate may be hiked one more time this year to a peak range of 5.50% to 5.75%, and rates could be significantly tighter through 2024 than previously anticipated.

Additionally, the Fed revised its Summary of Projections (SEP), indicating that Fed officials estimate the interest rate to hit 5.1% by the end of 2024 (from 4.6% prior). The higher-for-longer rate narrative has propelled the US Dollar against its rivals and acts as a tailwind for the USD/CAD pair.

On the Loonie front, a decline in oil price has undermined the commodity-linked Loonie as the country is the leading oil exporter to the United States. Data released on Tuesday showed that Canadian Consumer Price Index (CPI) in August surged to 4.0% YoY from 3.3% in July. Meanwhile, the core CPI that excludes volatile oil and food prices rose to 3.3% YoY from 3.2% in the previous reading. These figures might convince the Bank of Canada (BoC) to raise interest rates yet further.

In a speech after the publication of the data, BoC Deputy Governor Sharon Kozicki said that ups and downs of the size we've seen in the past couple of months are not that unusual which is why the central bank focuses on measures of core inflation.

Looking ahead, the US weekly Jobless Claims, the Philly Fed, and Existing Home Sales will be due on Thursday. On Friday, the preliminary US S&P Global PMI for September and Canadian Retail Sales for July will be released. Traders will take cues from these data and find trading opportunities around The USD/CAD pair.