Fed Hike and Oil Rebound Cap USD/CAD Near 1.40
The US dollar has gained strength due to expectations of further interest rate hikes from the Federal Reserve. On Wednesday, the Fed raised its benchmark interest rate by 25 basis points (bps) to a range of 3.75%-4%, marking its first rate hike since 2023.
This decision was made in response to rising energy prices and inflation risks, which are keeping borrowing costs elevated. According to the latest projections, sixteen out of eighteen Fed officials expect at least one additional rate hike this year.
As a result, investors see a 55% chance of another 25 bps rate increase at the October meeting, according to the CME FedWatch tool. The repricing of US monetary policy also supports US Treasury yields, with the benchmark 10-year yield rebounding to around 4.98%, approaching its highest level since 2007.
The Canadian dollar has been affected by the oil price rebound, which is limiting gains in USD/CAD. West Texas Intermediate (WTI) Oil has recovered to around $97.30 at the time of press, after hitting an intraday low of $94.63.