USD/CAD Falls Sharply as Waller Comments Spark Rate Expectations Revision

The Canadian Dollar (CAD) has been trading sideways against the US Dollar (USD) at around 1.3790 on Friday, following a strong Thursday where it fell sharply due to Federal Reserve Governor Christopher Waller's comments on inflation and interest rates.

Waller stated that recent data signals some cool-off in inflationary pressures, which led to a downward revision in the Fed’s interest rate expectations. This development resulted in the USD/CAD falling sharply on Thursday.

The key remark from Waller is that he would support holding rates steady at the September 15-16 meeting if data show continued progress but would consider a 'small adjustment' higher if progress reverses. This message is data-dependent and conditionally hawkish, supportive of the Dollar on upside inflation surprises but limiting aggressive repricing of near-term hikes.

The Fed Sentiment Index fell by 2.06 points to 125.38, signaling a modest pullback in perceived hawkishness relative to recent communications captured by the FXS Speechtracker. However, with the index still well above the neutral 100 mark, the Fed remains firmly in hawkish territory.