USD/CAD drops to near 1.4080 on intensifying Fed dovish expectations
- USD/CAD falls to near 1.4080 as Fed dovish expectations have swelled.
- Fed’s Williams favours the need of further monetary policy adjustment this year.
- US producer inflation and Retail Sales grew at a moderate pace in September.
The USD/CAD pair trades 0.12% lower to near 1.4080 during the Asian trading session on Wednesday. The Loonie pair faces slight selling pressure as the US Dollar (USD) trades cautiously amid firming speculation that the Federal Reserve (Fed) could cut interest rates in the monetary policy meeting in December.
At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto Tuesday’s losses near 99.70.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.16% | -0.19% | -0.16% | -0.13% | -0.40% | -1.19% | -0.14% | |
| EUR | 0.16% | -0.05% | -0.02% | 0.00% | -0.26% | -1.04% | 0.00% | |
| GBP | 0.19% | 0.05% | 0.02% | 0.06% | -0.20% | -0.99% | 0.06% | |
| JPY | 0.16% | 0.02% | -0.02% | 0.03% | -0.23% | -1.03% | 0.03% | |
| CAD | 0.13% | -0.01% | -0.06% | -0.03% | -0.28% | -1.07% | -0.00% | |
| AUD | 0.40% | 0.26% | 0.20% | 0.23% | 0.28% | -0.80% | 0.27% | |
| NZD | 1.19% | 1.04% | 0.99% | 1.03% | 1.07% | 0.80% | 1.07% | |
| CHF | 0.14% | -0.01% | -0.06% | -0.03% | 0.00% | -0.27% | -1.07% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
According to the CME FedWatch tool, the probability of the Fed to cut interest rates by 25 basis points (bps) to 3.50%-3.75% in the December meeting has increased to 85.3% from 50.1% seen a week ago.
Fed dovish bets intensified after comments from New York President John Williams on Friday signaled that he could support interest rate cuts in the December policy meeting.
“I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions, adding that there is room for a further adjustment in the near term,” Williams said, CNBC reported. Willams supported the need of further monetary policy expansion, citing that the "economic growth has slowed and the labor market gradually cooled."
Apart from the dovish monetary policy guidance from Fed’s Williams, benign United States (US) data has also weighed on the US Dollar. On Tuesday, the data showed that the US core producer inflation cooled down – which excludes volatile food and energy items – and Retail Sales rose moderately in September.
Meanwhile, the Canadian Dollar (CAD) trades broadly calm on expectations that the Bank of Canada (BoC) will hold interest rates in the near term. In the October policy meeting, the BoC signaled an end to its monetary expansion cycle after reducing interest rates by 25 bps to 2.25%.
Contrary to BoC’s comments, analysts at Citi expect more interest rate cuts in 2026, citing that both growth and inflation could be softer than expected into next year.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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