The USD/CAD pair is holding modest gains during the Asian session on Tuesday, trading around 1.4380 after three consecutive days of losses. The pair’s upside potential is supported by the Federal Reserve’s recent indication of fewer interest rate cuts next year, as the disinflation process slows. However, soft US PCE data have tempered inflation concerns, leaving the economic outlook somewhat mixed.
US Data Offers Mixed Signals for USD
On the data front, US Durable Goods Orders for November were weaker than expected, declining by 1.1%, compared to the forecasted 0.4% drop. This follows an upward revision for October, which showed a 0.8% increase, up from an initial 0.2% rise. Additionally, the US Consumer Confidence Index fell by 8.1 points in December, landing at 104.7, as the rebound in consumer confidence was not sustained.
US households also expressed concerns about President-elect Trump’s economic policies, with nearly half of respondents fearing that tariffs could raise living costs. These worries are compounded by the Federal Open Market Committee’s recent projections, indicating fewer rate cuts in 2025 due to persistent inflationary pressures.
Canada’s Economic Outlook Remains Challenged
In Canada, the economy showed some positive momentum, with GDP rising by 0.3% month-over-month in October, exceeding the forecasted decline of 0.1%. However, the Raw Material Price Index in Canada fell sharply by 0.5% in November, a significant drop from the 4.0% rise in October and well below the expected 0.6% increase.
Looking ahead, Canada’s GDP is expected to have contracted by 0.1% in November, marking the first monthly contraction of the year and aligning with the central bank‘s recent warnings and downgraded growth projections.
Outlook for USD/CAD
The outlook for USD/CAD remains cautiously optimistic for the US Dollar, supported by the Fed‘s stance on rate cuts and concerns over global inflation. However, the mixed economic data from both the US and Canada suggest that further price action may remain choppy in the near term, as traders await further clarity on economic trends in both countries.
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