USD/JPY and USD/CAD Await Key Fed Decision

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The US dollar is consolidating against the yen and Canadian dollar ahead of the key event of the week — the Federal Reserve meeting. The Fed is widely expected to raise its policy rate by 25 basis points to a range of 3.75–4.00%. As this move is already largely priced in, attention will focus on the updated economic projections, dot plot and press conference. Investors will assess whether the September rate hike marks the beginning of a new phase of monetary tightening or whether the central bank will prefer to adopt a wait-and-see approach.

Expectations of a more hawkish Fed are supported by persistent inflationary pressures, recent employment data and rising oil prices. US retail sales data will provide an additional reference point ahead of the meeting. Strong figures could provide further support for the dollar, although the market reaction is likely to remain limited ahead of the Fed decision.

USD/JPY

The decline in USD/JPY over the past two weeks has slowed around the key support area of 152.90–153.20. At the start of the week, the price tested this area several times, while buyers managed to establish a foothold above the psychological 155.00 level yesterday. Hawkish Fed rhetoric could support a corrective rise in USD/JPY towards 156.20–157.00. More cautious signals regarding further policy tightening, by contrast, could put renewed pressure on the dollar and lead to another test of the 152.90–153.20 area.

Key events for USD/JPY:

  • today at 15:30 (GMT+3): US core retail sales;
  • today at 21:00 (GMT+3): US Federal Reserve interest rate decision;
  • today at 21:30 (GMT+3): Federal Open Market Committee press conference.

USD/CAD

USD/CAD has recovered from its recent lows and is testing the 1.3895–1.3940 resistance area, despite support for the Canadian dollar from elevated oil prices. A firm move above 1.3940, followed by the level turning into support, could pave the way for a rise towards 1.4000–1.4030. A failed attempt to establish itself above the current resistance area, by contrast, could trigger a renewed decline towards the 1.3760 support level.

Key events for USD/CAD:

  • today at 15:30 (GMT+3): Canadian building permits;
  • today at 17:30 (GMT+3): US crude oil inventories;
  • today at 18:30 (GMT+3): Federal Reserve Bank of Atlanta GDPNow indicator.

Overall, USD/JPY and USD/CAD remain in consolidation ahead of the key Fed decision. As a 25-basis-point rate hike is already largely priced in, the dollar’s subsequent reaction will depend primarily on the central bank’s projections and rhetoric. Signals pointing to further tightening could support gains in both pairs, while a more cautious Fed stance could put renewed pressure on the US currency.