Account to Account
Canadian Dollar Gains Against the US Dollar After Fed Announcement
As expected, the Federal Reserve approved another quarter-percentage-point interest-rate increase, but much more significantly, it acknowledged that a banking crisis might result in the Fed’s rate-increase campaign coming to an end sooner than anticipated. This means two things: (1) the banking crisis is serious enough to force the Federal Reserve Bank to change course on its plans for “ongoing increases” in interest rates, and (2) the banking crisis will more than likely contribute to a slowdown in economic activity by making banks more risk-averse (less likely to lend). If the Federal Reserve is not inclined to increase rates and is now more in line with the Bank of Canada, which has already paused its interest rate increases, then there is less of an incentive for investors to hold US Dollars versus Canadian dollars. As a result, the Canadian dollar gained in value against the US dollar after the Wednesday Fed announcement. Expect the Canadian Dollar to continue to gain against its US dollar counterpart. The only X-Factor would be further turmoil in the banking sector, which could send investors running for safe-haven assets such as the US dollar. The Canadian dollar is currently trading at (USD/CAD) 1.3652 or 0.7342 (CAD/USD).