USD/CAD extended its gains for a second straight session, trading near 1.3770 during Thursday’s Asian hours. The pair drew support from a firmer US Dollar (USD), underpinned by robust inflation projections that tempered expectations for deeper Federal Reserve (Fed) rate cuts. According to the latest Federal Open Market Committee (FOMC) forecasts, policymakers see inflation ending 2025 at 3% at the median, well above the central bank’s 2% target.
Fed signals cautious easing
The Fed delivered its first rate cut of the year on Wednesday, lowering the federal funds rate by 25 basis points and signaling an additional 50 bps of easing before year-end, modestly above June’s projections. While the FOMC’s median forecast points to two more cuts this year, stronger outlooks for growth, employment, and core inflation cast uncertainty on the scope of easing in 2026.
Fed Chair Jerome Powell cited growing signs of labor market weakness as justification for the rate move, noting that risks from tariff-driven inflation remain. His remarks highlighted a careful, data-dependent approach to future decisions.
BoC cuts rates amid cooling domestic conditions
The Bank of Canada (BoC) also reduced its benchmark rate by 25 bps to 2.50% on Wednesday. In its Monetary Policy Statement, the central bank pointed to three major developments since July: further labor market softening, easing underlying inflation pressures, and the removal of most retaliatory tariffs, which reduced inflationary risks.
