USD Strengthens Ahead of Fed Decision Amid Elevated Oil Prices
The US Dollar (USD) remains firm ahead of the Federal Reserve's monetary policy announcement on Wednesday. The USD/CAD exchange rate has advanced for a fifth straight day, trading near a two-week high at 1.3913.
Rising oil prices are providing some support to the commodity-linked Canadian Dollar, but hawkish Fed expectations and elevated Treasury yields are keeping the US Dollar supported.
The benchmark 10-year US Treasury yield has climbed above 5%, its highest level since 2007, reflecting concerns over inflation. The Headline Consumer Price Index (CPI) stood at 3.4% YoY in August, while the Producer Price Index (PPI) accelerated to 5.4%.
The Federal Reserve is expected to hike interest rates by a quarter point on Wednesday, but attention will turn to updated economic projections and comments from Fed Chairman Kevin Warsh. Strategists at Scotiabank note that the Canadian CPI release was 'broadly in line with expectations' and did little for the CAD or short-term rates.