The USD/CAD pair paused its four-day rally during the Asian session on Monday, trading near 1.4400. The Canadian Dollar (CAD) gained traction on reports of Canadian Prime Minister Justin Trudeau’s imminent resignation and strengthening crude oil prices, key drivers for the commodity-linked currency.
Trudeau Resignation Sparks Political Uncertainty
Canadian political developments took center stage as Prime Minister Justin Trudeau is expected to announce his resignation ahead of a national caucus meeting on Wednesday. Citing sources, The Globe and Mail reported that Trudeau might step down as Liberal Party leader as early as Monday. Markets are likely to watch closely for the potential impact of Trudeau’s resignation on Canada’s political and economic landscape.
Oil Prices Bolster the Loonie
West Texas Intermediate (WTI) crude oil rose to around $73.50 per barrel, approaching its highest level since October 2024. Higher oil prices provided additional support for the CAD, with colder weather in the Northern Hemisphere and China’s economic stimulus measures raising expectations for increased global fuel demand. As Canada remains the largest crude exporter to the US, any upward momentum in oil prices tends to directly benefit the Canadian Dollar.
Fed Hawkishness Limits USD/CAD Downside
Despite CAD strength, the downside for USD/CAD remains cushioned as the US Dollar (USD) stays firm. The US Dollar Index (DXY), measuring the greenback’s performance against six major currencies, hovers near the 109.00 mark, reflecting confidence in the Federal Reserve’s hawkish stance.
The Fed is anticipated to pause its easing cycle at the January meeting after three consecutive rate cuts. The latest dot plot in the Fed’s Summary of Economic Projections suggests that policymakers expect the Federal Funds Rate to reach 3.9% by year-end, implying only two rate cuts in 2025.
Fed officials have reiterated a cautious approach to monetary policy. Richmond Fed President Thomas Barkin emphasized on Friday that interest rates should remain restrictive until inflation shows clear signs of stabilizing at the 2% target. Similarly, Fed Governor Adriana Kugler and San Francisco Fed President Mary Daly underscored the central bank’s delicate task of balancing inflation control and economic stability.
Technical Outlook: USD/CAD Faces Resistance Near 1.4400
The USD/CAD pair continues to trade in a bullish trend but faces immediate resistance at 1.4440, the recent multi-month high. A sustained break above this level could open the door for further gains toward the 1.4500 psychological mark.
On the downside, initial support is seen at 1.4350, followed by the 1.4300 level. A decisive drop below these thresholds could shift momentum in favor of the CAD, particularly if oil prices extend their rally or Canadian political uncertainty diminishes.
Market Focus This Week
Traders will closely monitor further developments regarding Trudeau’s resignation, Canadian economic indicators, and crude oil dynamics. On the US side, key macroeconomic data—including ISM Services PMI, JOLTS Job Openings, and the Nonfarm Payrolls (NFP) report—will provide fresh direction for the USD.
As both political and economic factors come into play, the USD/CAD pair remains poised for volatility in the near term.
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