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  • The Fed hikes as expected by 25bps and the USD/CAD price action has been mixed initially on the back of a reasonably mixed  outcome of the FOMC rate decision and statement – (The  expected 25bp rate hike by the Fed had been close to fully priced for at least a month anyway).  

One of the key aspects to today’s meeting was whether “the stance of monetary policy remains accommodative” would be removed. It has been and the dollar spiked lower as the market figures the  Fed  is close to neutral already. However, there is also a hawkish twist to the outcome with bullish economic projections and indeed the median projections are for one further rate hike this year  and an additional three hikes next year. Prior to this meeting around, the median projections were for one further rate hike this year, and an additional three hikes next year – (78bp was priced by OIS forwards, compared with just 61bp at the beginning of the month).

Key takeaways from the statement:

  • Sees one more rate hike this year, three in 2019 – hawkish.
  • Sees faster econ. Growth this year, slightly faster growth next year in new economic projections compared with June projections.
  • Sees slightly lower PCE inflation in 2019 compared with prior projections; projections for 2019 core PCE and 2019 unemployment rate unchanged.
  • Does not change the description of the economy; repeats that jobs gains have been strong and household spending and business fixed investment have grown strongly.
  • Repeats expects further gradual increases in fed funds rate will be consistent with sustained economic expansion, strong jobs market and inflation objective.
  • Repeats risks to the economy appear ‘roughly balanced’.
  • Sets interest rate paid on excess reserves at 2.20%, keeping it 5bps below top of Fed funds target range.
  • Fed vote in favour of policy was unanimous.

New Federal Reserve forecasts Sept 26, 2018:


  • 2018 – 3.1%  vs 2.8% prior
  • 2019 – 2.5% vs 2.4% prior
  • 2020 – 2.0% vs 2.0% prior

Unemployment rate:

  • 2018 – 3.7%  vs 3.6% prior
  • 2019 – 3.5%  vs 3.5% prior
  • 2020 – 3.5%  vs 3.5% prior

PCE inflation:

  • 2018 – 2.1%  vs 2.1% prior
  • 2019 – 2.0%  vs 2.1% prior
  • 2020 – 2.1%  vs 2.1% prior

The market now awaits the presser from Chair Powell:

Powell to speak at 2:30 PM ET (1830 GMT) – Will we hear a somewhat dovish  Chair Powell again in his press conference today? Upbeat comments about the strength of the US economy is bound to support the dollar. But watch for low inflationary concerns and any jive around trade wars.  

NAFTA risks

Also, note that  NAFTA is stalling and that is bullish for USD/CAD –   Risks  remain  elevated here as the market  assess the latest comments from U.S. Trade Representative Lighthizer. The US will likely publish the NAFTA text this Friday, leaving  Canada out – that sent USD/CAD to a pre-Fed high of 1.2990 from 1.2964 –   Bloomberg reported the story but said that the US will leave open the possibility for the country to join the agreement later, citing three people familiar with the matter.   Meanwhile, domestic risk returns with Thursday’s speech from BoC Gov. Poloz and Friday’s monthly GDP for July.

USD/CAD levels

The key technicals ahead of the event were  neutral-bullish: The bearish momentum indicators had softened and bearish trend strength indicators had moderated.  1.3000 is still a big level toward the 50 and 100 day MA’s at 1.3050 while near-term support was between 1.2920, now 1.2940 and 1.2900.