USD/CAD Hits Two-Week High as Markets Price in Quarter-Point Fed Hike

The US Dollar has extended its winning streak against the Canadian Dollar for the fifth consecutive day, reaching a two-week high as investors eagerly await the Federal Reserve's monetary policy announcement on Wednesday.

Rising oil prices have provided some support to the commodity-linked Canadian Dollar, but it remains vulnerable to the strong US Dollar. The USD/CAD pair is currently trading around 1.3913, barely changed from yesterday's levels.

The markets are heavily pricing in a quarter-point Fed rate hike on Wednesday, with the benchmark 10-year US Treasury yield surging above 5% for the first time since 2007. This hawkish sentiment has kept the US Dollar firmly supported, with the US Dollar Index (DXY) hovering near 99.60.

The Canadian Dollar's struggles are partly due to the Bank of Canada's steady policy approach, which leaves a significant interest rate gap in favour of the Greenback. Strategists at Scotiabank note that while the latest Canadian CPI release was 'broadly in line with expectations', it did little to boost the CAD or short-term rates.