October 14, 2021

What Happens To Market Sentiment Ahead Of The FOMC?

 The Canadian dollar strengthened higher against the US dollar on Wednesday but the strengthening was limited before reaching a 2 -month high recorded the day before. Among the influencing factors is the fall in oil prices and investors are still puzzled in responding to U.S. inflation.

The loonie traded 0.1% higher at 1.2454 against the US dollar or 80.30 U.S. cents after trading in the range of 1.2436 to 1.2478. On Tuesday, the loonie had touched its highest level since July 30 at the trading level of 1.2430.

U.S. consumer prices rose strongly in September and is poised to continue to rise in the coming months amid a spike in rising energy costs. This indirectly makes the Fed's view on inflation increasingly questionable.

On the other hand, the yen depreciated nearly $ 4 against the US dollar in the last three weeks, its worst performance in the 10-group. There are signs that this is just the beginning. The Fed’s prospect of reducing its asset purchases next month, and completing its buying process in mid -2022 adds further pressure on the yen with the Bank of Japan still maintaining their policy.

The US dollar index, which measures the US against six major currencies, traded down 0.35% to 94.198 ahead of the FOMC meeting. The market is now focusing on the FOMC meeting to get more indications on the policies to be implemented.