February inflation in Canada came in below expectations which caused the Canadian dollar to give up 0.2% against the US dollar. Despite the move, the Loonie continues to trade just below its 3-year high. There is now intense focus on the Federal Reserve release and press conference at 2 pm, where the US central bank faces a surging economy, record stock prices, slowly rising bond yields and some fear of inflation. Chairman Powell will likely acknowledge the much improved conditions but repeat the message that rates will remain unchanged until 2023 and that the asset purchase program will continue. However, markets are hyper-sensitive to the Fed at the moment and even the slightest change in tone or messaging indicating a change in the Fed’s approach will strengthen the US dollar. Regardless of the direction, we can expect greater than usual volatility in USD to CAD as the market absorbs the Fed’s message.
