The USDCAD currency pair was trading higher as the US dollar rallied against its Canadian peer following hawkish comments from US Federal Reserve policymakers. The pair’s rally higher was further fueled by the drop in oil prices as tracked by the West Texas Intermediate (WTI).
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The Canadian dollar put up an intense fight against the US dollar amid hawkish comments from multiple Fed members, with James Bullard hinting at future rate hikes and more pain for investors and consumers.
Bullard said that interest rates need to rise to 5-5.25% to have a significant impact on inflation despite even the lagging data used by the Fed indicating that inflation in the United States is falling. The Fed appears keen to extinguish market hopes for lower rate hikes.
However, investors remain unconvinced about the Fed’s aggressive stance, with many noticing that the world’s leading central bank now has less room to hike rates than it did at the beginning of the year. As a result, many are not buying the fear being peddled by the Fed.
Still, the Canadian dollar and other currencies recently rallied against the US dollar after the latest US inflation data indicated that core inflation was falling. The Fed uses core inflation as its primary inflation indicator.
However, investors may be underestimating the Fed’s determination to inflict pain on consumers and investors, given that nobody thought the Fed would raise interest rates until the end of 2022.
The Fed wants everyone to stop going into a buying frenzy whenever they can smell that the Fed may be easing up on its aggressive interest rate hikes. The recent market rally could be the sole reason for an aggressive rate hike from the Fed in December.
Therefore, the recent rally in risk assets, including stocks, may not bode well for investors, but again, regardless of the market’s reaction, the Fed has less legroom now than it did at the start of the year; hence, it will have to start tapering its rate hikes.
*This is not investment advice.
USDCAD price chart.
The USDCAD currency pair was trading up 55.4 pips (0.44%) as the greenback attempted to rally against the loonie.