Canadian Dollar churns as markets gear up for last US Fed rate call of 2023

• Canadian Dollar is set for a bumpy ride as markets face down one last appearance from Fed Chair Powell.
• FOMC updates Dot Plot as investors hope for a firm path toward rate cuts in 2024.
• CAD catches a supporting bid from rising Crude Oil, WTI bounces from new lows.

The Canadian Dollar (CAD) is moderately bid on Wednesday, gaining support from a thin but noticeable relief rally in Crude Oil markets. Still, markets see plenty of chop as investors jockey for position ahead of the US Federal Reserve’s (Fed) last appearance for 2023.

The Canadian economic calendar remains tepid this week; Loonie traders will be forced to wait until Bank of Canada (BoC) Governor Tiff Macklem’s appearance late Friday before the CAD finds tradeable headlines from behind home plate.

Markets are keenly waiting the Fed’s Federal Open Market Committee (FOMC) meeting to deliver their updated Interest Rate Outlook, known as the “Dot Plot”. With the Fed all but guaranteed to hold rates at 5.5% for their last rate decision of 2023, investors will be diving into the FOMC’s rate expectations as well as the Fed’s stance moving forward.

The Fed’s Monetary Policy Statement and Interest Rate Projections will be released at 14:00 EST(19:00 GMT). Fed Chairman Jerome Powell’s last press conference of the year is slated to begin at 14:30 EST (19:30 GMT).

Daily Digest Market Movers: Canadian Dollar grinds through frothy markets ahead of Fed rate call

• Despite the Canadian Dollar’s Crude Oil-fueled bid on Wednesday, the Fed is stealing the limelight, and it’s all eyes on Powell for the mid-week market session.
• The Federal Reserve is set to hold rates at 5.5% for the third straight FOMC meeting, its longest holding pattern since the most recent rate hike cycle began in early 2022.
• Investors are broadly anticipating an accelerated path toward more frequent rate cuts next year.
• Markets are anticipating rate cuts to begin as soon as the first quarter of 2024, and investor expectations of easing rates may have run well ahead of what the Fed considers achievable.
• With Fed Chair Powell scrapping forward guidance last year, Fed rate statements have an outsized market impact as the US central bank assesses data on a case-by-case basis.
• Crude Oil markets sank to fresh lows this week, with West Texas Intermediate (WTI) sagging into $68 per barrel early Wednesday before catching a near-term relief rally back toward $70.
• The Canadian Dollar is latching onto the rebound in Crude Oil to squeeze out a tenth of a percent gain against the US Dollar (USD) heading into the Fed release window.

Technical Analysis: Canadian Dollar’s sideways stance set to get rattled, USD/CAD in play near 1.3600

The Canadian Dollar (CAD) sees choppy trading forming into a near-term sideways channel against the US Dollar (USD), keeping the USD/CAD capped between 1.3610 and 1.3550. Intraday action remains chained to the 200-hour Simple Moving Average (SMA) as near-term momentum drains out of the pair.

A bounce from the 200-day SMA for the USD/CAD at the start of December has failed to crystallize into a meaningful bullish recovery, keeping the pair constrained in a congestion zone just beneath the 1.3600 handle.

The US Dollar is down two-and-a-third percent against the Canadian Dollar after dropping from December’s early high of 1.3899 and making a clean shear of the 50-day SMA just below 1.3700.

Fundamentals are going to drive the USD/CAD on Wednesday, and technical traders will need to be mindful that technical barriers could easily evaporate, depending on how investors digest the day’s headlines.

USD/CAD Hourly Chart

USD/CAD Daily Chart