The USD/CAD pair weakened to around 1.4395 during Asian trading hours on Friday, supported by a rise in crude oil prices, which bolstered the commodity-linked Canadian Dollar (CAD) against the U.S. dollar.
S&P Global’s latest data showed that Canada’s Manufacturing PMI improved to 52.2 in December, up from 52.0 in November, marking the highest reading since February 2023. The result exceeded expectations of 51.9, signaling continued expansion in the Canadian manufacturing sector.
The CAD also benefitted from higher crude oil prices, as Canada remains the largest oil exporter to the United States. Typically, an increase in oil prices strengthens the Canadian Dollar, which is heavily influenced by commodity exports.
However, concerns over potential U.S. tariffs and domestic political uncertainty in Canada have created downward pressure on the Loonie. In December, President-elect Donald Trump indicated plans to impose 25% tariffs on Canada and Mexico unless they take action to curb migrant flows and fentanyl imports into the U.S.
Meanwhile, the U.S. Federal Reserve’s recent decision to cut the target federal funds rate by 25 basis points to 4.25%-4.50% could lend short-term strength to the Greenback. The Fed‘s shift to a more cautious pace of rate cuts in 2025, with only two anticipated reductions compared to the four previously forecasted in September, may provide continued support for the dollar.
As traders await further U.S. economic data, including the December Manufacturing PMI, the market will look for clearer signals regarding the trajectory of U.S. monetary policy and its implications for the USD/CAD outlook.
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