The USD/CAD pair remains in positive territory for the fourth consecutive day, hovering around the 1.4400 mark during the early Asian session on Friday. The US Dollar (USD) continues to be supported by the cautious stance of the Federal Reserve (Fed), while market participants await the release of labor market data from both the US and Canada for December.
US Dollar Supported by Fed’s Cautious Approach
Inflation concerns, triggered by the potential tariffs under the incoming Donald Trump administration, have increased market expectations that the Federal Reserve will adopt a slower pace of interest rate cuts in the year ahead, boosting the Greenback. Recent minutes from the Federal Open Market Committee (FOMC) revealed that policymakers believe the process of returning inflation to target could take longer than anticipated, largely due to stronger-than-expected inflation readings and potential policy changes under the new US administration.
Tensions Over Trade and Tariffs Between the US and Canada
Market participants are also monitoring the growing uncertainty surrounding US-Canada trade relations, with the possibility of tariffs adding to the pressure on the Canadian Dollar (CAD). On Thursday, Canadian Prime Minister Justin Trudeau warned of a strong response should President-elect Trump proceed with imposing tariffs on Canadian goods.
Crude Oil Prices Provide Some Support to CAD
Despite the trade concerns, the Canadian Dollar is receiving some support from higher crude oil prices, as Canada remains the largest oil exporter to the United States. The positive momentum in oil markets could help limit CAD’s losses and provide a buffer against the broader weakness in the currency.
Focus on December Labor Market Data
Looking ahead, traders will be closely watching the December labor market data from both the US and Canada. The figures could provide fresh insights into the economic outlook and potentially influence the next moves in the USD/CAD pair. However, trade concerns and the outlook for the US Dollar remain dominant drivers for the pair in the near term.
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