The USD/CAD pair remained stable following two consecutive days of gains, trading around 1.4410 during the Asian session on Friday. The Canadian Dollar (CAD) saw modest gains, supported by a rise in crude oil prices, as Canada continues to be the largest oil exporter to the United States.
At the time of writing, West Texas Intermediate (WTI) crude oil was trading at approximately $69.50 per barrel. Oil prices have been bolstered by reports indicating that major European energy companies are focusing on oil and gas for short-term profits rather than renewable energy sources, a trend that is expected to persist into 2025.
Canada’s economy likely contracted by 0.1% in November, marking its first monthly decline of the year. This decline reflects concerns raised by the Bank of Canada (BoC) in its recent warnings and revised growth forecasts. The Canadian government also revised its 2025 GDP growth outlook to 1.7%, down from 1.9%, and adjusted 2026 growth expectations to 2.1% from 2.2%. As the BoC signals potential further rate cuts to stimulate growth, the widening interest rate gap between Canada and the United States could diminish the CAD’s appeal.
However, the downside for USD/CAD may be limited as the US Dollar (USD) strengthens due to rising expectations that the US Federal Reserve will slow its pace of rate cuts. In its December meeting, the Fed reduced interest rates by a quarter point and revised its 2025 outlook to reflect just two rate cuts, down from four previously anticipated.
The US Dollar Index (DXY), which tracks the USD against six major currencies, continues to trade above 108.00, slightly below its highest level since November 2022. However, the USD’s upside could face resistance, as 2-year and 10-year US Treasury yields remain relatively subdued, at 4.32% and 4.57%, respectively.
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