On Wednesday, The Federal Reserve held its benchmark federal funds rate steady for the third consecutive time. This effectively put the final nail in the coffin of this historic round of rate hikes, which saw rates go from near zero to the current range of between 5.25% and 5.5%, a 22-year high.
As recently as September, the expectation was that there would be at least one more increase this year, followed by two cuts in 2024. However, on Wednesday, officials projected they would lower rates to around 4.6% by the end of 2024. Perhaps even more surprising were Fed Chair Powell’s comments that rate cuts can now come into ‘focus’ for the Fed.
The Fed’s surprisingly dovish posture has poured gasoline onto what was already a notable ‘risk rally,’ as investors rush into risk-based assets. As interest rates come down, economic activity tends to pick up, leading investors to seek higher and riskier assets, such as the Canadian dollar.
Accordingly, the Canadian dollar saw its second day of gains against the US dollar on Thursday. The Canadian dollar has now gained two full cents against its US counterpart and has hit a four-month high amid broad US dollar weakness since the Fed announcement.
The Canadian dollar is currently trading at 1.3419 CAD against the US Dollar.
