USD/CAD Exchange Rate Prediction – The Dollar Rallies on Dovish Fed Decision

The USD/CAD rebounded on Wednesday following the Fed’s decision to keep rates unchanged. The FOMC did announce that it will begin to taper its bond purchase program beginning in November and will continue to due this in December. If they kept up the pace, their tapering would terminate in June of 2022. U.S. yields moved slightly higher helping to buoy the greenback.

Technical Analysis

The dollar rallied on Wednesday. The exchange rallied, bouncing off suport near the 10-day moving average, 1.2375. Resistance is seen near the 50-day moving average at 1.2546. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Medium-term momentum is about to turn positive as the MACD (moving average convergence divergence) index is generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

 The Fed Said Tapering and Tightening are Two Different Situations

The Fed said they are ready to taper due to improvement in the economy but not tighten rates. The statement stressed that investors should not view the reduction in purchases as a signal that rate hikes are imminent. The Fed kept short-term interest rates unchanged. The Federal Reserve announced Wednesday that it will begin to taper its monthly bond purchases in November. The process will see reductions of $15 billion each month,  $10 billion in Treasurys and $5 billion in mortgage-backed securities,  from the current $120 billion a month that the Fed is buying.