USD / CAD – Canadian dollar digesting FOMC rate cut

– FX markets churn post-FOMC decision.

– Bank of England stays the course-leaves rates unchanged

– US dollar trading with a small bid after overnight price swings.

USDCAD: 1.3538, overnight range 1.3533-1.3648, close 1.3605, WTI $70.79, Gold, $2591.94

The Canadian dollar was whip-sawed following the FOMC decision to slash US interest rates by 50 bps, and the volatility continued overnight. When the dust settled USDCAD in early NY, USDCAD had settled at 1.3554 in NY trading.

Wednesday’s FOMC meeting was highly anticipated with traders and analysts split on whether the Fed would cut 25 or 50 bps. The market reaction to the news of a 50 bp rate cut (taking the Fed range to 4.75-5.0%) was predictable as half the market was caught wrong-footed.

The Fed’s somewhat aggressive action was predicated on lowering rates to the “neutral level” quickly allowing Fed Chair Jerome Powell to successfully engineer a “soft-landing.” The decision was not unanimous as Governor Michele Bowman only wanted to cut by 25 bps, the first FOMC dissentions since 2005.

The Canadian dollars lack of sustained upside gains is because Bank of Canada Governor Tiff Macklem put a 50 bp rate cut on the table in an interview with the Financial Times on Sunday. If so, it would narrow favourable CAD/US interest rate differentials and limit gains.

WTI oil prices are higher, rising from 69.16 to 71.01 mainly due to supply disruption concerns because of elevated tensions in the Middle East.

Asian equity traders were happy with the Fed’s decision and all the major indices closed with gains. That them continued in Europe with the French CAC 40 index gaining 1.92%. Wall Street is set to open on a happy note with S&P 500 futures up 1.70%.

EURUSD traded choppily after the FOMC decision then rallied from 1.1069 to 1.1179 overnight. Prices are underpinned by expectations that ECB policymakers will take a slower approach to cutting rates then their American counterparts.

GBPUSD surged to 1.3299, post FOMC then spiked to 1.3314 when the Bank of England decided to keep rates unchanged. That rally wasn’t sustained, and prices dropped back to pre-BoE meeting levels.

USDJPY churned following the FOMC and then overnight, trading in a 141.88-143.95 range. The market had largely expected the Fed’s actions, and now attention has shifted to the upcoming Bank of Japan meeting.

AUDUSD rallied from a low of 0.6737 to 0.6838 overnight, buoyed by a stronger-than-expected labour market report.

Today’s US data includes weekly jobless claims, Philadelphia Fed Manufacturing Survey, and Existing Home Sales