USD/CAD Rate Holds Steady With Federal Reserve Rate Decision On Tap

USD/CAD is little changed from the start of the week even as the Durable Goods Orders report warns of a slower-than-expected recovery, with demand for large-ticket items increasing 0.8% in June versus forecasts for a 0.8% print.

Image of DailyFX economic calendar for US

It remains to be seen if the Federal Open Market Committee (FOMC) will respond to the lackluster data prints as a deeper look at the report shows Non-Defense Capital Goods Orders excluding Aircrafts, a proxy for business investment, increasing 0.5% during the same period amid projections for a 0.7% rise, and signs of limited consumption may keep the Fed on the sidelines as Chairman Jerome Powell tells US lawmakers that “reaching the standard of ‘substantial further progress’ is still a ways off.”

In turn, the FOMC may stay on track to “increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month” ahead of the next quarterly meeting in September, and more of the same from Chairman Powell and Co. may produce headwinds for the Greenback as the central bank remains reluctant to switch gears.

However, the FOMC may start to layout a tentative exit strategy as “various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings,” and a material change in the Fed’s forward guidance may generate a bullish reaction in the US Dollar as the central bank shows a greater willingness to taper its emergency programs.

Until then, USD/CAD may continue to trade below the 200-Day SMA (1.2608) as it tracks the range-bound price action from last week, but a further decline in the exchange rate may fuel the recent shift in retail sentiment as traders flip net-long the pair to reflect the crowding behavior seen earlier this year.

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