25bps Cuts Signal Softer Policy Path

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3650-1.3900

Euro                 1.6180-1.6430

Sterling            1.8670-1.8920

WTI Oil (opening level) $63.51

The CAD/USD is opening at 1.3773 ( 0.7261 )

The US dollar initially sold off on the release of the Fed’s new monetary policy statement and economic and policy projections, but then rallied during the Fed Chair Powell’s press conference, apparently deciding that the Fed’s likely policy path was already priced in before the meeting. EURUSD finds itself back below 1.1800 this morning after trading above 1.1900 briefly late yesterday, while USDJPY bounced hard off a 145.49 low, trading 147.25 this morning.

Headlines

·    The Bank of Canada cut interest rates by 25bps to 2.50%, citing a weaker economy and reduced inflation risks, with unemployment at 7.1%. Governor Macklem noted potential future cuts, given softening labor market and dissipating inflation pressures, while emphasizing careful risk assessment amid trade uncertainties.

·    The Fed cut rates 25 bps to 4.00–4.25%, as expected, citing a shift in risk balance. Eleven Fed voters, including Trump board nominees (from his first term) Bowman and Waller supported the move, while new Governor Miran dissented, favoring a 50-bp cut. Median projections showed 2 more cuts in 2025, but with a large group of Fed forecasters seeing no further change to the policy rate this year. The Fed also downgraded its labor market view, noting slower job gains and a slight rise in unemployment, while inflation remains elevated.

·    Australia’s Aug. Unemployment Rate came in steady at 4.2% as expected, while Full-time employment dropped -41k and part time employment rose 35.5k. The participation rate dropped 0.2% to 66.8%.

·    New Zealand's economy contracted 0.6% YoY in Q2 2025, driven by a 4.7% drop in goods-producing industries. Meanwhile, service industries grew 0.5% and primary sectors increased 0.1%. Quarterly GDP fell 0.9%, countering Q1's growth.

·    China told its tech firms to stop buying Nvidia’s RTX Pro 6000D AI chip and terminate all its existing orders ahead of the Trump-Xi meeting on Friday.

Key Points

·    Equities: Fed cut left U.S. mixed as chips sank; Europe flat into the Fed and BoE; Asia firmer with Hong Kong at 4-year highs

·    Volatility: Fed cuts 25bps; VIX drops; SPX ±38pt expected move; quarterly expiry ahead

·    Digital Assets: BTC steady at $117k; ETHA inflow; SEC eases ETF rules; crypto stocks red

·    Fixed Income: Treasury yields lift off lows as FOMC developments were already priced

·    Currencies: US rallies hard post-FOMC after initial sell-off

·    Commodities: Gold and silver in steep reversal as USD rallies post-FOMC