CAD Crumbles as Markets Anticipate First Rate Hike in Three Years

The Canadian Dollar (CAD) has dropped against the US Dollar (USD), reaching monthly lows ahead of the Federal Reserve's interest rate decision on Wednesday. The USD/CAD pair is up by a percentage point over the past six days, with markets anticipating a quarter-point rate hike for the first time in three years.

Strong employment and inflation figures have led to a hawkish repricing of US monetary policy, boosting the Greenback across the board. Futures markets are pricing in a 92% chance of a quarter-point rate hike on Wednesday and nearly an 80% chance of at least another one before the end of the year.

Analysts at Societe Generale note that the USD's near-term direction hinges on nuances from Fed Chair Kevin Warsh. If he does not sound hawkish, the market may doubt a second hike by the end of the year, and the dollar will struggle to make further gains.