USD/CAD drops towards 1.2800 on the back of dovish FOMC

• The USD/CAD dropped 40 pips as the Fed surprised the market with a dovish rhetoric.
• The USD is sold across the board as investors book their profits while some others reverse their positions.

The USD/CAD dropped about 40 pips toward the 1.2800 level as the Federal Reserve Bank surprised the market with rather dovish comments. 

A rate hike in June is still on the cards but the Fed basically said that the economy is not at risk of overheating. The Fed was not exactly upbeat on the economy with statements such as: “The economy's growth is described as moderate” while “household spending has moderated from Q4” and “risks are roughly balanced”.

The USD has been on an unprecedented bull run and the fact that the Fed sounds so cautious sees a lot of investors actually not only taking profits but also reversing their positions. While it is too early to call the end of the USD bull trend, investors, like the Fed, will be slightly more caution on the USD long trade.

The USD/CAD has been confined to the 1.2800-1.2900 range for quite some time and today’s FOMC statement sent the loonie 40 pips lower. However, the pair is still trading in its familiar range.