CAD Stable Following BoC and US Fed Meetings

The Canadian dollar was stable at 1.37 per USD following the Bank of Canada's and the US Fed decisions to hold interest rates. The BoC kept its policy rate at 2.25% and stated that it does not expect the recent surge in energy prices to de-anchor inflation expectations, limiting the view of a potential hike this year. Meanwhile, the US dollar inched higher as markets increased exposure to safe-haven assets amid no signs of de-escalation between the US and Iran. The Fed held its benchmark interest rate in the range of 3.5% to 3.75%, citing the surge in oil prices and increased economic uncertainty from the Iran war.

The Canadian dollar weakened to 1.37 per USD from the one-month high of 1.36 on April 27th, following the Bank of Canada's decision to hold interest rates. The central bank kept its policy rate at 2.25% and stated that it does not expect the recent surge in energy prices to de-anchor inflation expectations, limiting the view of a potential hike this year. Meanwhile, the US dollar strengthened as markets increased exposure to safe-haven assets on no signs of de-escalation between the US and Iran. The US Federal Reserve is also set to announce its next move on interest rates today with expectations of a hold, mirroring the BoC's cautious approach as it weighs the threat of the Iran war to its economy against the potential for a surge in inflation.

The Canadian dollar strengthened to 1.37 per USD in April, the strongest in one month, amid support from high oil prices and the outlook of a hawkish Bank of Canada. Despite momentary signals of de-escalation between the US and Iran, energy exports from the Persian Gulf remained targeted by Iranian forces and the US Navy seized an Iranian cargo ship, effectively halting tanker flows and trade in the Hormuz chokepoint. The surge in energy prices increased the inflows of foreign exchange into the Canadian financial system as Canada exports a large volume of energy, supporting the loonie. In turn, the resulting upswing in inflation drove the BoC to signal it will combat risks of higher energy prices resulting in entrenched inflation, also supporting the currency. The developments drove the Canadian dollar to outperform other G10 currencies since March as the global economy increased dollar positions due to its safe-haven status.