Fundamental Forecast for Canadian Dollar: Neutral
USD/CAD[1] bounces back from the weekly-low (1.3049) as the above-forecast print for U.S. Non-Farm Payrolls (NFP)[2] overshadows the 11.2K expansion in Canada Employment, but price action ahead of the Federal Reserve meeting raises the risk for a larger pullback in the exchange rate as it carves a fresh series of lower highs & lows.
The Federal Open Market Committee (FOMC) interest rate decision on November 8 may influence the near-term outlook for USD/CAD even though the central bank is widely expected to retain the current policy as Fed Fund Futures[3] continue to reflect expectations for a rate-hike in December.
It seems as though the FOMC[4] is sticking to the Summary of Economic Projections (SEP) as the central bank appears to be on course to raise the benchmark interest rate to a fresh range of 2.25% to 2.50% ahead of 2019, and Chairman Jerome Powell & Co. may continue to strike a hawkish forward-guidance for monetary policy as the economy sits at full-employment, while inflation climbs above the 2% target.
Moreover, a growing number of Fed officials may show a greater willingness to extend the hiking-cycle as ‘several participants reported that firms in their Districts that were facing higher input prices because of tariffs perceived that they had an increased ability to raise the prices of their products,’ and the ongoing shift in U.S. trade policy[5] may push Chairman Powell & Co. to ‘temporarily raise the federal funds rate above their assessments of its longer-run level in order to reduce the risk of a sustained overshooting of the Committee's 2 percent inflation objective or
