Canadian Dollar holds gains against subdued US Dollar as Fed pause expectations rise

The Canadian Dollar held onto gains against a subdued US Dollar as traders anticipated a possible pause in Federal Reserve rate hikes. The USD/CAD currency pair opened lower on Monday but quickly rebounded, trading around 1.4120 during Asian hours. Fed Chairman Kevin Warsh's remarks at an International Monetary Fund event suggested that the central bank may not pre-judge interest-rate decisions, raising hopes for a rate hold at the October meeting.

Traders' expectations for a rate increase have dropped significantly, with the CME FedWatch Tool now indicating an 83.9% probability that the Fed will keep rates unchanged. The weakness in the US Dollar could provide an opportunity for the Canadian Dollar to appreciate, despite its dependence on oil prices, which have recently slipped due to reduced sanctions on Russia.

Canadian economists will closely monitor inflation data and the Bank of Canada's Q3 Business Outlook Survey to gauge whether price pressures are broadening across the economy. The Canadian Dollar's performance is influenced by factors such as interest rates set by the Bank of Canada, the price of oil, the health of the Canadian economy, inflation, trade balance, and market sentiment.