The USD/CAD pair remained stable at around 1.4355 during early Asian trading hours on Tuesday. The session is expected to be subdued, given the holiday-shortened week and low trading volumes. Market attention is turning to the upcoming US December ISM Manufacturing Purchasing Managers Index (PMI), set for release on Friday.
At its December meeting, the Federal Reserve (Fed) reduced interest rates by 25 basis points (bps), adjusting the target range to 4.25%-4.5%. The Summary of Economic Projections (SEP) indicated a shift in the Fed’s outlook, with officials now predicting only two 25 bps rate cuts in 2025, down from four in the September forecast. This revision suggests a potential strengthening of the US Dollar (USD) against the Canadian Dollar (CAD) in the short term.
Market dynamics are also influenced by expectations of major US policy changes in 2025 as president-elect Donald Trump prepares to assume office in January. Trump has pledged to impose 25% tariffs on Canada and Mexico unless both nations take action to curb the movement of migrants and fentanyl into the US. The prospect of new trade tariffs poses risks for the Canadian economy, potentially pressuring the CAD while supporting USD gains.
On the other hand, a recovery in crude oil prices may provide a buffer for the CAD. As Canada is the largest oil exporter to the US, rising crude prices typically bolster the Canadian currency, mitigating some of the downward pressure from trade concerns.
The interplay of these factors will likely define the USD/CAD trajectory in the coming weeks.
Related Topics:
