CAD Rises Slightly Ahead of Fed

With no domestic economic data set for release Wednesday, the loonie will be looking for most of its direction from a key announcement from the U.S. Federal Reserve.

The Canadian dollar was sightly higher in morning trading, up 0.09 of a cent at 91.25 cents US.

Markets are awaiting the latest interest rate announcement by the U.S. central bank to be released at 2 p.m. , followed by a news conference by Fed chair Janet Yellen . What traders will be carefully eyeing is whether the Fed will be changing the language it uses when it speaks about its intention to raise interest rates.

It’s highly expected that the bank will keep interest rates at their current levels until at least mid-2015. Short-term rates have been near zero since the financial crisis of 2008-09.

Although it has never given a definitive timeline, the Fed has often reassured markets it will keep the rates low for a “considerable time” after its bond buyback program ends, likely in October. Traders will be watching to see if the central bank will drop the phrase “considerable time” from its latest announcement.

“We expect that the Fed will move cautiously hawkish today for several reasons,” said Camilla Sutton , chief FX strategist and managing director at Scotiabank Global Banking and Markets.

She said one of the major reasons will be that the Fed knows it can’t maintain its current tone amid an increasingly positive outlook for the U.S. economy, including improving signs for the labour market.

Meanwhile, currency traders are also waiting for the outcome of an independence referendum in Scotland , slated for Thursday. Polls indicate that the result is generally believed to be too close to call. A Yes vote would result in huge complications from currency to membership in the European Union and NATO .

via Kitco

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza