CAD Plunges as Fed Rate Outlook Sours Canadian Dollar

The Canadian dollar struggled overnight due to widening interest rate spreads and diverging expectations from the Federal Reserve and Bank of Canada. The USDCAD opened at 1.3998, with an overnight range of 1.3976-1.4008 and a close of 1.3990. Oil prices remained above $100 per barrel, easing concerns about supply shortages caused by the Houthi attacks on the Bab el-Mandeb Strait.

Investors appeared to be relieved after Fed Chair Kevin Warsh reaffirmed that restoring inflation to its target remains his priority, despite President Trump's call for lower interest rates. The US dollar rallied against the Japanese yen, despite the Bank of Japan's expected rate hike to 1.25%.

The euro remained on the defensive due to revived expectations of another US rate increase before year-end. The GBPUSD traded in a narrow range and was pinned near its session low despite a stronger-than-expected August Retail Sales report.