The USD/CAD currency pair extended its rally for the second consecutive session on Friday, reaching a fresh multi-year high of 1.4239, the highest level since April 2020. The upward momentum was driven by broad-based US Dollar (USD) strength amid revived tariff threats from the Trump administration, which have weighed on risk-sensitive currencies like the Canadian Dollar (CAD).
Lower crude oil prices further pressured the CAD, as Canada remains the largest crude oil exporter to the United States. West Texas Intermediate (WTI) crude oil prices held steady near $69.70 per barrel during the Asian trading hours, marking the second session of subdued activity in the oil market.
Despite these challenges, the Canadian Dollar’s downside may be capped by a cautious stance from the Bank of Canada (BoC). Following its latest policy decision, BoC Governor Tiff Macklem indicated that future interest rate cuts would proceed at a slower pace if the economy performs as anticipated. He also pointed to significant uncertainty surrounding potential US tariffs under President-elect Donald Trump.
In the United States, the USD drew additional strength from Thursday’s hotter-than-expected Producer Price Index (PPI) report. The index rose 0.4% month-over-month in November, the largest increase since June, following an upwardly revised 0.3% gain in October. The result exceeded market expectations of a 0.2% rise, reinforcing optimism about the US economy.
Markets now await the Federal Reserve’s interest rate decision, set for December 18. According to the CME FedWatch Tool, traders are fully pricing in a 25 basis-point rate cut, which could further influence the USD/CAD pair’s trajectory.
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