The US Dollar (USD) edged lower against the Canadian Dollar (CAD) on Wednesday, trading around 1.4040 after briefly dipping to 1.4026 earlier in the session. The pair is consolidating following Tuesday’s climb to a six-month high near 1.4080, as dovish remarks from Federal Reserve (Fed) Chair Jerome Powell weighed on the Greenback.
Fed’s dovish tone pressures the Greenback
In his latest comments, Fed Chair Jerome Powell signaled a growing shift in the central bank’s priorities, stating that policymakers are now “more concerned about the deterioration in the labor market than inflationary risks.”
Powell also confirmed that the Fed is nearing the end of its balance sheet reduction, or “Quantitative Tightening,” as liquidity conditions tighten. These statements reinforced expectations of further monetary easing, with futures markets pricing in a 97% chance of a 25-basis-point (bps) rate cut in October and another in December, according to the CME FedWatch tool.
US political and trade uncertainties deepen
Investor sentiment remains fragile as the ongoing US government shutdown stretches into its third week, threatening to push the Unemployment Rate higher amid expected federal layoffs. Lawmakers are set for another Senate vote on a temporary spending bill after Tuesday’s failed attempt to reopen government operations.
At the same time, escalating US-China trade tensions continue to cloud the global outlook. President Donald Trump’s announcement of 100% tariffs on all Chinese imports starting November 1 spurred fears of a deeper trade slump. However, US Treasury Secretary Scott Bessent suggested that Washington does not seek to “decouple from China,” hinting at possible room for negotiation.
Oil prices limit CAD gains
While the Loonie has regained some ground, its upside remains capped by persistently weak Oil prices. West Texas Intermediate (WTI) crude hovers near $57.80 per barrel, close to a five-month low of $57.33, as concerns over sluggish global demand and rising supply weigh on market sentiment. Traders now await the American Petroleum Institute (API) weekly Crude Oil inventory report for fresh clues on near-term price direction.
