The Canadian dollar rose against its US counterpart today as the greenback was driven down by unexpectedly dovish minutes of the Federal Open Market Committee. The loonie also gained versus most other major rivals and trimmed losses versus the euro thanks to the rally of crude oil that followed the release of the FOMC minutes.
While the Committee said it does not expect the hurricanes to have a long-term impact on the US economy, some of its members expressed concerns that sluggish inflation is not a result of just transitory factors and therefore another interest rate hike should be postponed:
Many participants expressed concern that the low inflation readings this year might reflect not only transitory factors, but also the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted. A few of these participants thought that no further increases in the federal funds rate were called for in the near term or that the upward trajectory of the federal funds rate might appropriately be quite shallow.
Yet others argued that it may be dangerous to wait too long before removing monetary accommodation:
These participants cautioned that an unduly slow pace in removing policy accommodation could result in an overshoot of the Committee’s inflation objective in the medium term that would likely be costly to reverse or could lead to an intensification of financial stability risks or to other imbalances that might prove difficult to unwind.
Despite the news, CME FedWatch shows that chances for a hike in December is still close to 90% as investors bet on the third rate increase this year.
Crude was trading mixed during the Wednesday’s session. Yet the commodity climbed after the minutes were released as the drop of the greenback boosted raw materials priced in the US currency.
USD/CAD dropped from 1.2514 to 1.2461 as of 20:51 GMT today. EUR/CAD traded at 1.4781 after opening at 1.4774 and rising to the daily high of 1.4837. CAD/JPY advanced from 89.82 to 90.27, bouncing from the daily low of 89.57.
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