Today at 2 PM ET, the US Federal Reserve will release the results of its two day meeting. The Fed is still the world’s most important central bank and the US dollar is the the world’s reserve currency. So, everyone will be listening and everything else will pale in its impact on the Canadian dollar exchange rate today. The Canadian dollar goes into the announcement showing some softness in response to oil trading down to well below its recent multi-year highs. The loonie has broken out of its recent range to the downside and is at its lowest level in more than a couple of weeks. USD to CAD at 1.244 (CAD to USD is at 0.804). The Fed will likely be laying out its post-pandemic policy in some detail. It will announce a reduction in asset purchases (“tapering”) that will probably begin in the following weeks. It may also provide additional clues as to when there will be an interest rate hike — currently anticipated in mid 2022. In telegraphing how it plans to end monetary stimulus, Chairman Powell will have to balance concerns about high inflation with downside risks to the economy. Move too quickly to tighten the reins in stimulus and the economic recovery might be jeopardized, move too slowly and the inflation threat will be exasperated. Needless to say that the US dollar will move up more if the central bank is seen as moving more quickly than expected and will decline if it is seen moving slower than anticipated.
