The USD/CAD pair continued its upward momentum on Wednesday, marking its fifth consecutive day of gains. Trading around the 1.4320 level during the Asian session, the pair’s strength is largely attributed to a weakened Canadian Dollar (CAD) following dovish comments from Bank of Canada (BoC) Governor Tiff Macklem.
On Monday, Macklem highlighted the BoC’s cautious stance in the face of growing economic uncertainties. He noted that the central bank is preparing for a future marked by heightened vulnerability to economic shocks and will evaluate the necessity of further rate cuts on a case-by-case basis. Macklem also suggested a more gradual approach to monetary policy if the economy evolves as expected.
In domestic political news, Canadian Prime Minister Justin Trudeau is under increasing pressure to resign after Finance Minister Chrystia Freeland announced her departure from the Cabinet on Monday, according to CNN.
Canadian Inflation Data Shows Weakness, CPI Falls Below Expectations
Canadian inflation data provided additional downside pressure on the CAD. The Consumer Price Index (CPI) for November came in at 1.9% year-over-year, slightly below the market expectation of 2.0%. On a monthly basis, CPI remained unchanged, in line with forecasts, after a 0.4% increase in October. Meanwhile, core inflation decreased by 0.1%, with the annual core CPI falling to 1.6% from 1.7% in October.
These inflation figures align with the BoC’s cautious outlook and underscore the central bank’s hesitance to raise rates in the near term.
Fed Rate Cut Likely to Support USD, Markets Eye Powell’s Comments
As traders brace for the US Federal Reserve’s interest rate decision later on Wednesday, market expectations are heavily skewed towards a 25 basis point rate cut at the Fed’s December meeting. According to the CME FedWatch tool, there is now nearly a 100% probability of a quarter-point reduction. Traders will also be closely watching Fed Chair Jerome Powell’s press conference and the Summary of Economic Projections (or ‘dot plot’) for any hints about future policy moves.
Outlook for USD/CAD
The continued strength in USD/CAD is likely to persist as long as the Canadian economy remains under pressure from both domestic political uncertainty and soft inflation data. The dovish BoC stance, coupled with expectations of a US Fed rate cut, should provide further tailwinds for the US dollar. Technically, the pair’s bullish trend remains intact, with traders watching for any break above the 1.4350 level for confirmation of further upside momentum.
Related Topics:
