USD/CAD posts modest gains to near 1.4400 in Wednesday’s early Asian session.
The Fed is set to hit the pause button on rate cuts at its January meeting on Wednesday.
US trade tariff risk and expectation of BoC rate cuts weigh on the CAD.
The USD/CAD pair trades with mild gains around 1.4400 during the early Asian session on Wednesday. The renewed US Dollar (USD) demand provides some support to the pair. Later on Wednesday, all eyes will be on the US Federal Reserve (Fed) and the Bank of Canada (BoC) monetary policy meetings.
The Fed is widely anticipated to leave interest rates unchanged at its current range between 4.25% to 4.5% at its January meeting on Wednesday, but traders will closely monitor the statement for more cues about the outlook for rates.
A hawkish stance of the Fed could lift the USD, while a dovish approach could drag the USD lower against the Canadian Dollar (CAD). Analysts expect the US central bank to take a wait-and-see approach to the Trump administration's policies, which could fuel inflationary.
Mounting economic pressures amid the threat of US trade tariffs could exert some selling pressure on the CAD. "The loonie continues to trade in limbo, awaiting the crystallization of US tariff risks," said Nick Rees, senior FX market analyst at Monex Europe Ltd.
Additionally, the BoC is expected to cut its benchmark interest rate by 25 basis points (bps) to 3.0% on Wednesday. The interest rate differential between Canada and the United States (US) might contribute to the CAD’s downside.
However, the recovery of crude oil prices from multi-week lows might help limit the commodity-linked Loonie’s losses. Canada is the largest oil exporter to the US, and higher crude oil prices tend to have a positive impact on the CAD value.
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