The USD/CAD pair remained subdued on Tuesday, trading around 1.4310 during European hours, as the Canadian Dollar (CAD) received some support from domestic political news. Canadian Prime Minister Justin Trudeau announced plans to step down, with the transition expected to take place before an emergency meeting of Liberal legislators on Wednesday. While this political uncertainty has had a limited impact on the currency so far, it contributed to the cautious sentiment in the market.
A report from The Globe and Mail further impacted the Canadian Dollar, stating that the Canadian government is considering an early release of a proposed list of U.S. goods that would face retaliatory tariffs. This move would be a response to potential tariffs that U.S. President-elect Donald Trump might impose on Canadian products, further stoking trade tensions between the two nations.
Oil Prices Weigh on CAD, OPEC Cuts Provide Potential Support
Despite the political developments, the Canadian Dollar has struggled to gain significant ground, mainly due to weaker crude oil prices. As Canada is the largest oil exporter to the United States, fluctuations in oil prices have a direct impact on the CAD. West Texas Intermediate (WTI) oil prices extended losses for the second consecutive session, trading around $72.90 per barrel at the time of writing, which added downward pressure on the commodity-linked CAD.
However, there is potential for oil prices to find support in the near term. According to Bloomberg, OPEC’s oil production declined in December, driven by supply cuts implemented by the United Arab Emirates (UAE) as part of efforts to stabilize global oil markets. These production cuts could help provide a floor for prices in the coming weeks, offering some relief to the CAD.
Economic Data in Focus: Canada’s PMI and U.S. Services Data
Market participants will focus on key economic releases later in the day. Canada’s Ivey Purchasing Managers Index (PMI) for December is expected to provide insight into the health of the Canadian economy. Traders will also be watching the U.S. ISM Services PMI, which could provide a clearer picture of the state of the U.S. services sector.
On the U.S. side, the seasonally adjusted S&P Global U.S. Services PMI Business Activity Index climbed to a 33-month high of 56.8 in December, up from 56.1 in November. This marked the second consecutive month of growth and pointed to robust business activity in the services sector. The S&P Global U.S. Composite PMI Output Index also showed growth, rising to 55.4 from 54.9 in November. These indicators suggest continued economic expansion in the U.S., which could offer support for the U.S. Dollar in the near term.
Trump’s Trade Policy and Its Potential Impact on USD
The U.S. Dollar could receive further support from President-elect Donald Trump’s comments regarding his tariff policy. Trump denied a Washington Post report suggesting that his team was considering narrowing the scope of his tariff plan to target only specific critical imports. His firm stance on trade policy could bolster the USD, particularly as traders await further details on the administration’s approach to tariffs.
Technical Outlook for USD/CAD
The USD/CAD pair continues to hover around key support levels, with traders closely monitoring developments in both domestic and international markets. Political uncertainty in Canada, coupled with fluctuating oil prices and global trade concerns, will likely keep the currency pair in a narrow range until further clarity emerges.
As the market waits for more data and developments, the USD/CAD pair may continue to trade in a sideways fashion, with oil prices and U.S. economic data playing key roles in shaping the near-term outlook for the pair.
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