The USD/CAD pair has gained momentum, trading around 1.3920 in the Asian session on Monday, as the U.S. Dollar (USD) benefits from a shift in market sentiment toward a potentially less dovish Federal Reserve (Fed). This change is spurred by expectations that Donald Trump may pursue substantial tariffs and tax cuts, policies that could raise inflation and influence the Fed’s stance on interest rates.
Analysts suggest that Trump’s policies could drive investment, spending, and labor demand, ultimately increasing inflationary pressures and possibly prompting the Fed to adopt a more restrictive approach to monetary policy. However, Fed Chair Jerome Powell emphasized last week that the Fed’s near-term policy is not influenced by speculation on potential future administration policies.
Strengthening USD and Weaker CAD Add to USD/CAD Upside
Supporting USD’s strength, the University of Michigan’s Consumer Sentiment Index rose to 73.0 in November, surpassing both October’s figure of 70.5 and market expectations of 71.0. This positive consumer sentiment data has further bolstered the Greenback.
On the other hand, the Canadian Dollar (CAD) is weighed down by falling crude oil prices. West Texas Intermediate (WTI) crude has declined for a second consecutive day, trading around $69.90 per barrel, with the drop attributed to disappointing economic measures in China and a lack of severe supply disruptions from Storm Rafael in the Gulf of Mexico. As the largest oil exporter to the U.S., Canada’s currency often tracks oil price movements, leaving CAD vulnerable amid this commodity dip.
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