USD CAD hits new multi year high ahead of Fed

USD/CAD reached up to hit a new 11-year high approaching its 1.3800 upside target early on Wednesday ahead of the Federal Reserve’s critical interest rate decision slated for later in the day. This new high occurred even as crude oil (West Texas Intermediate) has been attempting to stage a bounce this week after having hit a new multi-year low below $35 on Monday.

USD/CAD’s persistent rise in recent weeks and months has seen it regularly break out to new long-term highs and reach progressively higher price targets. This rise has largely been due to both a resilient US dollar that has benefited tremendously from US rate hike expectations as well as a weakening energy-linked Canadian dollar that has suffered from sharp slides in crude oil prices. Also contributing to the fall of the Canadian dollar have been two interest rate cuts by the Bank of Canada this year, although the central bank opted to keep rates on hold early this month due partly to a rise in non-energy exports.

With all eyes on the Federal Reserve and its highly-anticipated rate hike decision today, the question from most market participants has now turned from whether there will be a December rate hike, to what the future of US rate increases may look like.

The US dollar may continue to rise, or at least continue to be supported, in the event of a Fed decision to raise rates today, but very close attention will be paid to the language of the Fed’s statement to discern the outlook for monetary policy going forward. As many expect that language to be dovish, signaling a slow and gradual pace of tightening, any hawkish-leaning language that hints at a more aggressive policy stance in the future could likely lead to a further surge for the US dollar.

With crude oil continuing to wallow near its extreme lows, this potential surge could push USD/CAD above its nearby 1.3800 target, on its way towards the 1.4000 psychological resistance objective, which was last reached back in mid-2004.

Of course, in the somewhat unlikely event that the Fed fails to raise rates today, or if a rate hike is expectedly accompanied by dovish language hinting at a slow and gradual pace of tightening, USD/CAD could see a long-awaited pullback towards the key 1.3600 and 1.3400 support levels once again.