The USD/CAD pair has weakened to around 1.4235 on Tuesday, ending a three-day winning streak during the Asian trading session. Traders are awaiting the release of Canada’s November Consumer Price Index (CPI) inflation data later today, which could influence market sentiment. Meanwhile, the US Dollar Index (DXY), which measures the USD’s value against major currencies, has edged lower to approximately 106.75, as investors await the US Federal Reserve’s (Fed) interest rate decision on Wednesday.
Markets widely anticipate a 25 basis point rate cut from the Fed during its December meeting, as the US economy continues to grapple with persistent inflation and a cooling labor market. Following the decision, all eyes will be on Fed Chair Jerome Powell’s press conference and the updated economic projections. Hawkish commentary or signals of a slower pace of rate cuts from the Fed could strengthen the US Dollar against the Canadian Dollar (CAD).
JPMorgan’s chief US economist, Michael Feroli, suggested that the Fed’s updated forecasts could indicate stronger economic growth and firmer inflation for the year ahead, with the median interest rate forecast likely to show three rate cuts next year, down from the previously expected four.
On the other hand, dovish remarks from Bank of Canada (BoC) Governor Tiff Macklem could weigh on the Canadian Dollar. Macklem commented on Monday that the BoC is preparing for a future with more uncertainty and potential shocks. He also stated that the central bank would take a gradual approach to monetary policy and assess the need for further rate reductions on a case-by-case basis, depending on how the economy evolves.
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