USD/CAD holds positive ground above 1.4400 as Fed holds rates steady

• USD/CAD edges higher to around 1.4420 in Thursday's late American session. 
• The Fed decided to leave its overnight borrowing rate unchanged in a range between 4.25%-4.50% on Wednesday.
• The BoC reduced the policy rate by 25 bps to 3.0%, announced end of quantitative tightening.

The USD/CAD pair gains ground to around 1.4420 during the late American session on Thursday. The US Dollar (USD) strengthens broadly after the US Federal Reserve (Fed) left interest rates steady as widely expected but gave scant clues about further reductions in borrowing costs this year.

The US central bank held its overnight borrowing rate in a range between 4.25%-4.50% at its January meeting on Wednesday, as widely anticipated. The Fed's decision came after three consecutive cuts since September 2024 worth a full percentage point. This was the first Fed meeting after US President Donald Trump took office. 

Fed Chair Jerome Powell said during the press conference that the central bank would need to see "real progress on inflation or some weakness in the labor market before we consider making adjustments." The cautious stance of the Fed provides some support to the US Dollar against the Canadian Dollar (CAD). 

On the Loonie front, the Bank of Canada (BoC) cut its key policy rate by 25 basis points (bps) to 3.0% on Wednesday. The Canadian central bank also announced its plan to complete the normalization of its balance sheet and end quantitative tightening. The BoC added that a tariff war triggered by the United States could cause major economic damage.

"The potential for a trade conflict triggered by new U.S. tariffs on Canadian exports is a major uncertainty. This could be very disruptive to the Canadian economy and is clouding the economic outlook," said BoC governor Tiff Macklem on Wednesday. The concerns about trade conflict that would hurt economic activity in Canada might continue to undermine the CAD and create a tailwind for the pair in the near term.