Forex News

• USD/CAD eases as the Canadian Dollar steadies after the BoC interest rate decision.
• BoC leaves rates unchanged at 2.25%, signals readiness to act if needed amid geopolitical and trade uncertainty.
• US Dollar firms ahead of the Fed decision, limiting downside in the pair.

USD/CAD trims part of its earlier gains on Wednesday as the Canadian Dollar (CAD) finds some support following the Bank of Canada’s (BoC) monetary policy announcement. However, the pair lacks follow-through selling as the US Dollar (USD) holds firms ahead of the Federal Reserve’s (Fed) interest rate decision due at 18:00 GMT.

At the time of writing, the pair is trading around 1.3701. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading near 99.85, rebounding after two days of decline.

The BoC left its benchmark interest rate unchanged at 2.25%, maintaining the level seen since October. In the post-meeting press conference, Governor Tiff Macklem said, “We can raise rates if we see signs that energy prices are going to cause persistent inflation.” He added, “If energy prices come back down and we see more weakness in the economy, we can lower our policy rate.”

In his accompanying statement, Macklem highlighted ongoing uncertainty tied to US trade policy and geopolitical risks, while warning that the US-Israel war with Iran is pushing Oil prices higher and could lift inflation in the near term.

Macklem added that it is too early to assess the impact of the war on Canada’s economic growth. He noted that if higher Oil prices are sustained, they could support income from energy exports. However, he cautioned that elevated energy costs would also squeeze consumers, leaving them with less income for other spending.

He also said the Governing Council will look through the war’s near-term impact on inflation, but warned that if energy prices stay high, the Bank will not allow those effects to become persistent. Macklem emphasized that the Bank stands ready to respond as needed, as policymakers continue to assess the impact of US tariffs and trade policy uncertainty, while closely monitoring developments in the Middle East.

Focus now shifts to the Fed decision, with rates expected to remain unchanged at 3.50%-3.75% for a second straight meeting. Markets will closely watch the updated SEP, dot plot, and Fed Chair Jerome Powell’s press conference for clues on the monetary policy path amid an evolving inflation outlook.

ABN AMRO’s Senior Fixed Income Strategist Larissa de Barros Fritz analyzes how different Oil and Gas shocks affect ECB expectations and Bund yields. She notes that demand-driven Oil shocks, speculative inventory moves, and supply disruptions each have distinct rate and curve impacts. Gas supply shocks are seen as more inflationary and persistent, gradually embedding a Gas premium into Bund yields over time.

Different energy shocks, different Bund paths

"Oil shocks that are demand‑driven push rates sharply higher, while inventory (speculative) oil shocks trigger flight‑to‑quality declines."

"Oil supply shocks raise inflation and thus ECB expectations, but the accompanying growth drag limits the magnitude of longer‑term yield increases."

"Gas supply shocks are more inflationary and persistent than oil shocks, creating a stronger “gas premium” in Bund yields over time."

"Gas shocks initially cause muted or slightly negative Bund yield reactions due to slow inflation pass‑through, before driving a sustained rise in both short‑ and long‑term yields."

"Current market dynamics suggest an oil-led supply shock dominates, implying short‑term bear‑flattening followed by potential bear‑steepening as gas‑driven inflation slowly materializes."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

ING’s Benjamin Schroeder expects the Federal Reserve (Fed) to keep rates unchanged at its March FOMC meeting as higher Oil prices and elevated inflation expectations constrain policy. He notes markets see no cut today, with the first reduction only fully priced by year-end. ING’s economists anticipate slightly weaker growth forecasts, higher inflation projections and a postponement of the 2026 rate cut to 2027.

Fed seen holding and pushing back cuts

"The focus is on the FOMC meeting tonight, with rising inflation on the back of energy market turmoil seen as constraining the Fed. From the market side, the Fed is getting a feed of higher nominal yields, higher real yields and higher inflation breakevens. That combination is hardly one that is conducive to rate cuts."

"As for the immediate decision at hand, no cut is the clear expectation from markets. The vote split is likely to show at least one dissent towards cutting rates coming from Miran, which would be his fourth since joining the Fed. Beyond March, markets are seeing chances rising for a cut starting in the summer, with a cut fully priced in only by year-end."

"One key focus will be the Fed’s new forecasts, including the Dot Plot of individual Fed members' effective rate expectations. In December, the Fed pencilled in one rate cut in 2026 with one further 25bp cut in 2027. Our economists suspect the FOMC will trim growth forecasts marginally, push up its inflation forecast and then delay the 2026 rate cut until 2027."

"That said, given the situation, the Fed will likely have little conviction in its forecasts, and Chair Powell will be certain to underline the challenges in the current volatile environment."

"There will likely be some focus on the balance sheet as well, since the monthly US$40bn pace of reserve management purchases was temporary to begin with and expected to be reduced in April. We think the disappointing impact of the net US$130bn of balance sheet expansion since mid-December on the Fed Funds effective rate deserves questioning."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Royal Bank of Canada (RBC) economists Rachel Battaglia and Abbey Xu report that Canadian cardholder spending improved modestly in February, even as consumers continued to reduce discretionary goods purchases. Their core retail sales measure on a three‑month average stayed slightly negative but improved from January, with discretionary services and essentials offsetting weakness in goods and travel-related categories showing resilience.

Card data point to soft improvement

"RBC Canadian cardholder spending showed modest improvement in February despite consumers continuing to cut back on discretionary goods spending."

"Our core retail sales measure on a three-month average remained negative at -0.1%, but marked an improvement from -0.3% (seasonally adjusted), indicating the decline eased in February after weather-related disruptions and post-holiday fatigue weighed on spending in January."

"February’s contraction came entirely from discretionary goods—clothing and related retail segments was among the weakest performers."

"Weakness in discretionary goods spending was partially offset by spending growth in discretionary services and essentials. Travel, entertainment and art posted the strongest gains on a three-month average, pointing to continued resilience in experience-related spending."

"We expect higher oil prices will drive up purchases at gas stations. The impact on other essentials and discretionary spending is less clear as it will depend on how consumers allocate their remaining income, and the extent to which they tap into their savings."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

The White House announced on Wednesday that they have issued a 60-day waiver of the Jones Act shipping law, per Reuters.

The Jones Act, formally known as Section 27 of the Merchant Marine Act of 1920, dictates that all goods transported by water between US ports must be carried on US-built, US-flagged vessels owned and crewed by American citizens and permanent residents.

With this waiver, foreign vessels will be allowed to transport goods to the US. During a press briefing on March 12, White House spokesperson Karoline Leavitt explained that the waiver would "ensure vital energy products and agricultural necessities are flowing freely to US ports."

Market reaction

This headline failed to trigger a noticeable market reaction. At the time of press, the barrel of West Texas Intermediate (WTI) was trading near $97.60, rising about 3% on the day.

TD Securities expects the Sweden's central bank, Riksbank to keep its policy rate unchanged at 1.75%, noting that pre-Iran conflict inflation was running below December projections. The new energy shock raises uncertainty for both growth and inflation, but projections are unlikely to fully incorporate it yet, so policymakers are seen monitoring conditions while stressing readiness to respond if needed.

On hold as risks around energy evolve

"We expect Riksbank to keep policy rate on hold at 1.75%. Prior to the conflict in Iran, inflation was exhibiting downside risks below Riksbank's December projections."

"The onset of the conflict has significantly increased uncertainty, shifting the balance of risks on both inflation and growth."

"As elsewhere, timing becomes crucial as a prolonged energy shock could raise inflation expectations, though should the conflict resolve with limited lasting effects on energy prices, attention may revert to concerns about low underlying inflation."

"Projections at this meeting are not yet likely to take in the full potential of the energy shock and CPIF is actually set to be marked-to-market and revised down. "

"Therefore, the Executive Board will prefer to remain on hold and monitor, while emphasizing its preparedness to respond to changing circumstances."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Brown Brothers Harriman’s (BBH) Elias Haddad notes the Federal Reserve is widely expected to keep the funds rate at 3.50%-3.75%, with markets focused on the vote split, dot plot and Chair Powell’s tone. The bank argues a more dovish outcome would weigh on US real yields and the Dollar, as policymakers balance an energy-driven inflation shock against a fragile US labor market.

Fed stance key for Dollar direction

"The FOMC is widely expected to keep the target range for the funds rate at 3.50%-3.75% for a second straight meeting (6:00pm London, 2:00pm New York). Like all central banks, the Fed faces a familiar dilemma: look through the energy-driven inflation shock or lean against it and risk worsening the fragile US labor market backdrop."

"The FOMC vote split, dot plot, and Fed Chair Jay Powell’s press conference will offer important clues on the Fed’s tolerance to a supply-driven inflation shock. The more dovish the vote split, dot plots, and/or Powell’s tone, the more it signals tolerance for near-term inflation. That would weigh on US real yields, and by extension USD."

"Vote split: the base case is for a 9-3 vote to hold. Governors Stephen Miran, Christopher Waller and Michelle Bowman are seen dissenting in favor of a 25bps cut."

"Powell: watch to see whether Powell frames the energy shock as transitory noise or emphasizes concern about second-round effects and inflation expectations."

"Dot plot: the FOMC median rate forecast is expected to still imply one cut for both 2026 and 2027, no change in 2028 and a longer-term rate of 3.0%. That would be in line with the Fed funds future curve."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)