During the Asian trading session on Thursday, the USD/CAD pair continued its downward trajectory, nearing the 1.3470 mark for the second consecutive day. The Canadian Dollar (CAD) found support from the upward movement in crude oil prices.
West Texas Intermediate (WTI) crude oil prices experienced a rise, hovering close to $81.70 at the time of reporting. This surge potentially contributed to the strength of the CAD, following the United States (US) Energy Information Administration’s (EIA) announcement of a second successive week of declines in crude inventories. The decline suggests robust demand in the world’s largest oil consumer.
Meanwhile, the Bank of Canada’s (BoC) Governing Council is contemplating potential rate cuts for 2024, pending alignment with economic forecasts. Nevertheless, internal discord persists regarding the timing and risks associated with inflation. Governor Tiff Macklem exercises caution regarding immediate rate adjustments, expressing apprehension over underlying inflationary pressures.
At present, the US Dollar Index (DXY) has slipped to around 103.20, primarily due to weakened US Treasury yields. Yields for 2-year and 10-year bond coupons have dropped to 4.58% and 4.25%, respectively. This decline is attributed to the US Federal Reserve’s (Fed) reaffirmation of expectations for three interest rate cuts this year.
During Wednesday’s policy meeting, the Federal Reserve maintained its interest rates at 5.5%. Despite the Federal Open Market Committee (FOMC) projecting stronger growth throughout 2024 and 2025 than previously anticipated, investor sentiment suggests anticipations of additional easing measures in 2024.
Notably, the FOMC’s Dot Plot of interest rate expectations reveals an uptick in the long tail end of the curve. Rates are now projected to reach approximately 3.1% by the conclusion of 2026, up from the prior estimate of 2.9%.
