The USD/CAD pair has broken its three-day winning streak, trading around 1.4400 during the European session on Monday. The US Dollar (USD) is facing losses, with trading volumes remaining thin as the year-end holiday approaches.
Markets are still digesting the US Federal Reserve’s (Fed) recent hawkish stance, which is expected to support the USD and the USD/CAD pair in the near term. The Fed recently reduced its benchmark interest rate by 25 basis points in its December meeting, but the latest Dot Plot projections suggest only two rate cuts in 2025. This cautious outlook is fueling sentiment of stability.
Fed Chair Jerome Powell emphasized earlier this month that officials would proceed cautiously with further cuts after the expected quarter-point reduction. This hawkish message is likely to support the US Dollar and provide a tailwind for the USD/CAD pair in the short term.
Meanwhile, market participants expect President-elect Donald Trump’s incoming administration to implement tax cuts, tariffs, and deregulation, which could spur inflation and potentially lead the Fed to reassess its stance for 2025.
On the other hand, the Canadian Dollar (CAD), which is closely tied to commodity prices, is receiving some support from rising crude oil prices. As Canada is the largest oil exporter to the United States, the continued gains in West Texas Intermediate (WTI) crude oil—trading around $70.20 per barrel—are boosting the CAD.
However, the potential for further gains in oil prices may be limited as the market shifts its focus to 2025’s demand outlook. Concerns about an oversupplied market next year could undermine efforts by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to resume idle production. Additionally, uncertainties regarding future oil demand from China, the world’s largest importer, could weigh on prices and limit the CAD’s potential for further appreciation.
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