The Canadian dollar continues to hover near 3-year highs this morning despite the fact that oil is down 1.5%. More broadly, the markets are in a holding pattern while we await the pivotal Federal Reserve release and press conference tomorrow. The Fed (and the Bank of Canada) have been consistent that they will not let up on asset purchases until we are on our way to full employment recovery and they do not see that happening any time soon. But as the recovery has picked up steam, doubt has creeped into the market’s expectation as to how long the central banks will be able to hold on to that view. That is why tomorrow’s Fed statement will be watched very closely to see how the world’s largest central bank might be amending its approach as the economic picture improves. The current expectation is that the Fed will not change its position but if there is any hint that it is moving off of its dovish stance, then you can expect the US dollar to move up strongly. Also tomorrow, February inflation figures will be released in Canada. If inflation comes in substantially above consensus then you can expect the Canadian dollar to move up.
