📊 USDCAD moves sideways, awaiting Canadian CPI and Fed meeting

Yesterday, USDCAD continued to fluctuate within a relatively narrow range of 1.35650–1.36000 in anticipation of the upcoming interest rate announcement from the Federal Reserve (Fed).

👉 Possible effects for traders

The U.S. Dollar Index (DXY) has decreased due to the rising possibility of a 50-basis-point rate cut by the Fed. The aggressive U.S. rate reduction could lead to a significant decline in the DXY and the USDCAD exchange rate. According to the CME FedWatch Tool, there is a 67% probability that the Fed will reduce rates by 50 basis points, up from only 30% a week ago.

While a large rate reduction by the Fed is negative for USDCAD, the Bank of Canada (BOC) can lower its rates to support the economy, pushing the pair higher. ‘A larger move could provide the BOC with the opportunity to consider a substantial rate reduction’, said Michael Goshko, senior market analyst with Convera Canada ULC. Before making a decision on lowering rates, the Canadian central bank will closely monitor inflation reports.

USDCAD has been trading in a relatively narrow range in Asian and European trading hours. The main event of the week is the Fed interest rate decision on Wednesday. Still, CAD traders should also closely monitor the release of the Canadian Consumer Price Index (CPI) data and U.S. Retail Sales report at 12:30 p.m. UTC. These two economic reports may increase market volatility and cause mixed reactions.

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📊 Fed rate cut expectations fuel EURUSD surge

The euro (EUR) gained 0.51% against the U.S. dollar (USD) on Monday as the greenback weakened due to rising expectations of a 50-basis-point (bps) rate cut by the Federal Reserve (Fed) later this week.

👉 Possible effects for traders

The U.S. Dollar Index (DXY) has been declining for three consecutive days, pushing up the value of other major currencies, as investors have grown increasingly confident in a supersized rate cut by the Fed. Apart from the weaker-than-expected jobs report on Thursday, there was no major news that may have made investors suddenly feel more optimistic about the dovish Fed. ‘There's only really one story today, and that is a continuation of what we saw last week: after the CPI, the market was comfortable with a 25-bps rate hike, but many people suspect the Fed planted a story to put 50 bps back on the table’, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

The European Central Bank (ECB) indicated last week that further rate cuts in the eurozone are not guaranteed and will depend on the data. Thus, the divergence in monetary policy expectations between the ECB and the Fed has expanded even further, supporting the euro. The ECB should ‘almost certainly wait until December’ before cutting interest rates again to be certain it's not making a policy mistake in easing too quickly, ECB Governing Council member Peter Kazimir said on Monday.

EURUSD was flat during the Asian and early European trading sessions. Today, the main event is the release of the U.S. Retail Sales report at 12:30 p.m. UTC. Higher-than-expected figures may temporarily pause the bullish trend in EURUSD but are unlikely to reverse it. Conversely, lower-than-expected figures may push the pair higher, probably above 1.11600.

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📊 Gold awaits Fed's interest rate decision

Gold (XAU) traded within the range of $2,575–$2,590 on Monday as investors were cautious ahead of the Federal Reserve (Fed) meeting.

👉 Possible effects for traders

The New York Empire State Manufacturing Index for September posted a surprising increase towards 11.5, significantly outperforming the expected −3.9 and the previous month's −4.7. However, this stronger-than-anticipated result failed to invigorate the U.S. dollar (USD) bulls, as market participants remain focused on broader economic factors, including the upcoming Fed interest rate decision this Wednesday. Despite the positive manufacturing data, concerns about the overall health of the U.S. economy and uncertainty regarding the U.S. interest rate trajectory keep traders cautious, limiting USD gains.​

Last week, the yield on the 2-year U.S. government bond, particularly sensitive to interest rate changes, dropped to its lowest since September 2022. The benchmark 10-year U.S. Treasury yields also declined to their lowest since June 2023. Some repositioning ahead of the Federal Open Market Committee (FOMC) policy meeting, which will begin later today, helped the U.S. dollar recover from its year-to-date low. The CME FedWatch Tool indicates that markets are factoring in a 67% probability that the U.S. central bank will reduce interest rates by 50 basis points (bps) this Wednesday. The likelihood of more aggressive policy easing by the regulator could continue to support the gold price.

XAUUSD was falling in the Asian trading session. Today, traders should focus on the U.S. Retail Sales report due at 12:30 p.m. UTC. Recent reports indicated decreasing inflation. Thus, lower-than-expected retail sales data will increase the chance of a 50-bps rate cut, pushing XAUUSD. Conversely, the pair may correct towards $2,560 if retail sales numbers exceed expectations.

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📊 AUDUSD sits still ahead of the Fed interest rate decision

The Australian dollar (AUD) moved sideways yesterday in a range of 0.67500–0.67700 ahead of today's Federal Reserve (Fed) interest rate decision. The Fed is expected to cut the interest rate first for the time in four years today.

👉 Possible effects for traders

AUDUSD benefitted from market expectations that the Fed could reduce interest rates by 50 basis points (bps) today. According to the CME FedWatch Tool, futures markets were pricing in a 65% chance of such a move. Even a strong U.S. Retail Sales report didn't significantly affect the size of the expected rate reduction. Carol Kong, a currency strategist at the Commonwealth Bank of Australia, stated that the U.S. dollar (USD) may experience a small, short-term increase if the Federal Open Market Committee (FOMC) implements only a 25-bps reduction. However, the reaction of the USD to a larger 50-bps decrease will depend on how the FOMC communicates its decision.

The size of the Fed rate cut will affect the path of interest rates in Australia. Market participants see little prospect of a reduction in the cash rate of 4.35% at the Reserve Bank of Australia's (RBA) meeting next Tuesday, given that policymakers have consistently maintained a hawkish stance. However, analysts anticipate that the upcoming monthly inflation report for August will likely show that headline inflation has returned to the target range of 2–3% due to government electricity rebates.

AUDUSD has continued to move in a range today during Asian and early European hours. Market participants remain focused on today's Federal Reserve's interest rate decision at 6:00 p.m. UTC.

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📊 EURUSD is at risk of correction due to the upcoming Fed meeting

The euro (EUR) lost 0.17% against the U.S. dollar (USD) on Tuesday as Treasury yields rose due to a better-than-expected U.S. Retail Sales report.

👉 Possible effects for traders

Yesterday, U.S. Commerce Department data revealed a surprising rise in retail sales in August, indicating that the economy continued to expand steadily in Q3. The data support a less aggressive stance by the Fed, pushing the U.S. Dollar Index (DXY) and U.S. Treasury yield higher yesterday. Still, the traders expect a very dovish approach to monetary policy by the Fed. Interest rate swaps market data implies that traders believe the U.S. central bank will halve its base rate by the end of 2025 and price in a 65% chance of a 50-basis-point rate cut at today's Fed meeting. ‘I think all the markets at this point are hostage to the FOMC meeting. Retail sales were okay. It certainly doesn't show that there should be an imminent rush to have supersized cuts, and it would be somewhat unprecedented for the Fed to really panic in rate cuts given where the market is at this point’, said Marvin Loh, senior global market strategist at State Street in Boston.

Meanwhile, yesterday's eurozone data supported the case for more rate cuts by the European Central Bank (ECB). ZEW Economic Research Institute reported that German business confidence fell towards 3.6 points from 19.2 points in August, an 11-month low. ‘Expectations are plummeting because there is simply no light at the end of the tunnel. The general trend towards falling growth forecasts is likely to continue’, said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe. Despite the eurozone economy underperforming compared to the U.S. one, the market still expects the ECB to deliver fewer rate cuts than the Fed. If investors begin to adjust their expectations, EURUSD will face a serious risk of a sharp downward correction.

EURUSD was rising during the Asian and early European trading sessions. Today's key event is the Fed's interest rate decision at 6:00 p.m. UTC. It's important to watch because the latest FOMC projections will come out, including the so-called ‘dot plot’—an interest rates forecast by FOMC members published four times a year. The market will likely treat a 25-bps rate cut as bearish for EURUSD, but this reduction has been priced in well in advance. If the Fed delivers a hawkish 50 bps rate cut while downplaying the likelihood of future reductions, EURUSD may move sideways. A large 50-bps cut and dovish FOMC projections will almost certainly pull EURUSD above the 1.12000 level.

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📊 Fed meeting and FOMC projections will shape gold market sentiment

Gold (XAU) fell by 0.5% following a stronger-than-expected U.S. Retail Sales report.

👉 Possible effects for traders

The U.S. Census Bureau revealed that retail sales figures in August increased by 0.1%, surpassing the anticipated 0.2% decline. Meanwhile, sales excluding autos were below expectations, growing by just 0.1%. The stronger-than-expected data triggered some intraday short-covering in the U.S. dollar (USD), lifting the currency from its lowest level since July 2023. However, the upward momentum faded due to prevailing expectations of a dovish monetary policy from the Federal Reserve (Fed). The two-day policy meeting ends today, with the Fed anticipated to announce its first rate cut since 2020. Fed fund futures indicate that investors are leaning more toward a 50-basis-point (bps) cut, with markets pricing in a 65% chance of this outcome and only a 35% probability of a 25-bps rate cut.

Additionally, ongoing geopolitical risks from conflicts in the Middle East and political uncertainty in the U.S. ahead of the November election may continue to support gold prices. Traders might also wait for the outcome of the much-anticipated Fed policy meeting and the updated U.S. economic forecasts before making their next moves in XAUUSD.

XAUUSD was falling during the Asian trading hours. Today, traders should prepare for above-normal volatility as the day is packed with critical data releases. The major event is the Fed rate decision at 6:00 p.m. UTC and the subsequent press conference at 6:30 p.m. UTC. The market expects the regulator to cut the rates by 50 or 25 bps. The Fed will also release FOMC projections, likely influencing market sentiment, especially if further cuts are hinted. A larger rate cut could push XAUUSD above $2,700, while a 25 bps reduction will moderately affect the pair, as the cut has already been priced in. In addition, the U.S. Building Permits report at 12:30 p.m. UTC may spur extra volatility in all USD pairs. Higher-than-expected results will strengthen the greenback, pulling XAUUSD lower. Lower-than-expected figures will have a positive impact on the pair.

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