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  • USD/CAD popped as high as the 1.2790 level in a knee-jerk reaction to the FOMC policy announcement.
  • However, as FOMC Chair Powell reassured markets that stimulus is here to stay, USD fell again and USD/CAD fell back below 1.2750.

USD/CAD briefly popped as high as the 1.2790 level in the immediate aftermath of the FOMC policy announcement, with the initial “hawkish” reaction (USD strength) being driven by a spike higher in US bond yields and a steepening of the yield curve after the FOMC opted not to make any tweaks to the size of weighted average maturity of its asset purchase programme (and in doing so maintained it at a rate of $80B in treasuries and $40B in agency-backed securities).

However, the initial spike higher in USD/CAD quickly reversed and the pair now trades just to the south of the 1.2750 level as FOMC Chairman Jerome Powell gave markets reassurance in the post-announcement press conference that the Fed’s ultra-accommodative policy stance is going nowhere anytime soon;

Powell said that the bank’s new guidance on asset purchases is a powerful message, referring to the FOMC policy statement where it says that asset purchases will continue at the current pace until substantial progress towards the bank’s inflation and employment mandates has been made. Moreover, Powell said that the bank has flexibility to provide more accommodation if circumstances shift and that we will continue to use our tools to support the economy for as long as it takes until well and truly done. More specifically, and seemingly alluding to market expectations prior to the meeting, Powell teased that the FOMC still has the ability to buy more bonds, or buy longer-term bonds, and may use it, as the FOMC remains open to increasing size of asset purchases if that turns out to be appropriate.

Even though USD/CAD has seen a significant reversal from earlier highs, the loonie is still the worst G10 performing currency on the day and USD/CAD still trades with gains of around 0.3% or just under 40 pips on the day.

USD/CAD forms triple top around 1.2790…