CFD Trading Rate US Dollar vs Canadian Dollar (USDCAD)

• USD/CAD appreciates toward 1.4467, the highest level not seen since March 2020.
• The US Dollar strengthened as the Fed may adopt caution regarding additional rate cuts.
• The commodity-linked CAD struggles due to declining crude Oil prices.

USD/CAD retraces its recent losses and edges higher toward 1.4467, the highest level not seen since March 2020, which was recorded in the previous session. The pair trades near 1.4410 during the Asian hours on Friday.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six other major currencies, maintains its position near 25-month high at 108.49, marked on Thursday, following key economic data from the United States (US).

US Gross Domestic Product (GDP) Annualized reported a 3.1% growth rate in the third quarter, surpassing both market expectations and the previous reading of 2.8%. Additionally, Initial Jobless Claims dropped to 220,000 for the week ending December 13, down from 242,000 in the prior week and below the market forecast of 230,000.

The US Dollar strengthened the Fed's emphasis on exercising caution regarding additional rate cuts. Fed Chair Jerome Powell explained that the central bank would be wary of further cuts, as inflation is expected to remain persistently above the 2% target. The Fed's monetary policy statement indicated that economic activity remained robust, while noting that labor market conditions had softened.

The Canadian Dollar (CAD) faces headwinds as expectations grow for further rate cuts by the Bank of Canada (BoC) in 2025, although the era of large, aggressive reductions may have passed. Additionally, declining crude Oil prices are pressuring the commodity-linked CAD, given that Canada is the largest Oil exporter to the United States. 

Traders will closely watch Canadian October Retail Sales data on Friday. Meanwhile, in the United States, attention will focus on the Personal Consumption Expenditures (PCE) Inflation and the Michigan Consumer Sentiment Index.

• USD/CAD gains ground to around 1.4405 in Friday’s early Asian session. 
• The hawkish rate cut by the Fed supports the USD. 
• An unexpected downtick in the November Canadian CPI inflation reinforces expectations for more BoC modest rate cuts.

The USD/CAD pair gathers strength to near 1.4405 during the early Asian session on Friday, bolstered by the firmer Greenback broadly. Traders will keep an eye on Canadian October Retail Sales and US Core Personal Consumption Expenditures (PCE) Price Index data, which are due later on Friday. 

The US Federal Reserve lowered the federal funds rate by 25 basis points (bps), bringing its target range to 4.25% and 4.50%. The latest Summary of Economic Projections (SEP), or “dot plot”, indicated the US central bank's intention to reduce the number of interest rate cuts next year from four to just two quarter-percent reductions. This stance proved significantly more hawkish than market expectations, which boosts the US Dollar (USD) broadly.

On the other hand, a slowdown in Canadian Consumer Price Index (CPI) inflation in November fuelled the expectations that the Bank of Canada (BoC) will cut rates further in 2025, though the era of jumbo reductions may be over. This might weigh on the Canadian Dollar (CAD) and act as a tailwind for USD/CAD. 

“Overall, the November inflation report was mixed—while headline CPI eased to 1.9% year over year, core measures showed some stickiness. We continue to expect the Bank of Canada to trim policy rates by 25 basis points in January and shift toward a more gradual approach to cutting rates in 2025,” said Rachel Siu, head of Canadian fixed income strategy at BlackRock. 

• USD/CAD slumps to near 1.4360 as the US Dollar corrects mildly after a robust rally.
• The Fed sees two interest rate cuts in 2025 amid strong economic growth.
• The US economy expanded at a faster pace of 3.1% in the third quarter of the year, slower than the preliminary estimate of 2.8%.

The USD/CAD pair falls sharply to near 1.4360 in Thursday’s North American session after posting a fresh more than four-year high at 1.4467. The Loonie pair slumps as the US Dollar (USD) bulls take a breather after a stalwart rally. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, corrects after refreshing two-year high near 108.25.

The Greenback rallies on Wednesday after the Federal Reserve (Fed) signaled fewer interest rate cuts for 2025 in the monetary policy meeting in which it reduced its key borrowing rates by 25 basis points (bps) to 4.25%-4.50%. According to the Fed’s dot ploy, policymakers see Federal Fund rates heading to 3.9% by the end of 2025.

Fed Chair Jerome Powell guided a cautious approach on interest rate cuts amid uncertainty over inflation, easing downside risks to employment and strong growth in the second-half of the year.

On the economic front, second estimate for the Q3 United States (US) Gross Domestic Product (GDP) data has shown that the economy rose at a faster pace of 3.1% than the preliminary estimate of 2.8%. Initial Jobless Claims for the week ending December 16 have come in lower at 220K than estimates of 230K and the former release of 242K.

Meanwhile, the outlook of the Canadian Dollar (CAD) remains bearish as the Bank of Canada (BoC) is expected to ease its interest rates further amid growing risks of inflation undershooting the bank’s target of 2%.

• USD/CAD retreats after touching a fresh multi-year peak earlier this Thursday.
• The overbought RSI prompts some profit-taking amid subdued USD price action.
• The recent breakout through an ascending trend channel favors bullish traders.

The USD/CAD pair extends its steady intraday retracement slide from the highest level since March 2020 and drops back closer to the 1.4400 mark during the first half of the European session on Thursday. The uptick could be attributed to some profit-taking amid the overbought conditions on the daily chart, though the fundamental backdrop seems tilted firmly in favor of bulls. 

The Federal Reserve (Fed) offered a more hawkish view and signaled a cautious path of policy easing next year, which remains supportive of a further rise in the US Treasury bond yields to a multi-month peak. Apart from this, geopolitical risks and trade war fears should continue to act as a tailwind for the US Dollar (USD). Apart from this, the political crisis in Canada, the Bank of Canada's (BoC) dovish stance and a downtick in Crude Oil prices could undermine the commodity-linked Loonie. This might contribute to limiting the downside for the USD/CAD pair. 

From a technical perspective, the Relative Strength Index (RSI) remains above the 70 mark and prompts some long unwinding around the USD/CAD pair. That said, this week's breakout through a multi-week-old ascending channel was seen as a key trigger for bullish traders and supports prospects for the emergence of dip-buying at lower levels. Hence, any further corrective slide below the 1.4400 round figure is likely to find decent support and remain limited near the aforementioned ascending trend-channel breakout point, around the 1.4335-1.4330 region. 

This is closely followed by the 1.4300 mark, which if broken decisively might prompt some technical selling and drag the USD/CAD pair to the next relevant support near the 1.4250 horizontal zone. The downward trajectory could extend further towards the 1.4220-1.4215 region en route to the 1.4200 round figure. 

On the flip side, the 1.4450 zone now seems to act as an immediate hurdle. Some follow-through buying beyond the 1.4465 area, or the multi-year top, should allow the USD/CAD pair to reclaim the 1.4500 psychological mark. The subsequent move-up has the potential to lift spot prices to the 1.4560 intermediate hurdle en route to the 1.4600 round figure and March 2020 swing high, around the 1.4665-1.4670 region.

USD/CAD daily chart

• USD/CAD witnessed some profit-taking after touching a fresh multi-year high on Thursday.
• The fundamental backdrop warrants some caution before positioning for deeper losses.
• Traders now look to the final US Q3 GDP and Jobless Claims data for short-term impetus.

The USD/CAD pair retreats slightly after touching its highest level since March 2020, around the 1.4465 region during the Asian session on Thursday and for now, seems to have snapped a five-day winning streak. Spot prices currently trade near the 1.4430 area, or the daily low, though any meaningful corrective decline seems elusive. 

The US Dollar (USD) enters a bullish consolidation phase following the previous day's post-FOMC spike to a two-year high and prompts some profit-taking around the USD/CAD pair amid overbought conditions on the daily chart. Adding to this, an uptick in Crude Oil prices underpins the commodity-linked Loonie and further exerts pressure on the pair, though a combination of factors should help limit any further losses. 

In a shocking political development, Canada’s Deputy Prime Minister and Finance Minister Chrystia Freeland resigned earlier this week, citing disagreements with Prime Minister Justin Trudeau over economic strategy and US tariff threats. This comes on top of the Bank of Canada's (BoC) aggressive policy easing and dovish outlook. This should act as a headwind for the Canadian Dollar (CAD) and support the USD/CAD pair. 

Meanwhile, the Federal Reserve (Fed) offered a more hawkish view on the outlook for 2025 and signaled that it would slow the pace of rate cuts. This continues to push the US Treasury bond yields higher, which, along with the risk-off impulse, supports prospects for a further near-term appreciating move for the safe-haven buck. Hence, a strong follow-through selling is needed to confirm that the USD/CAD pair has topped out. 

Moving ahead, traders now look forward to the US economic docket – featuring the release of the final Q3 GDP print and the usual Weekly Initial Jobless Claims – for short-term impetus later during the North American session. The market attention will then shift to the US Personal Consumption Expenditure (PCE) Price Index, or the Fed's preferred inflation gauge on Friday.

• USD/CAD spikes after the Federal Reserve reduces interest rates by 25 basis points to a range of 4.25%-4.50%.
• Federal Reserve’s decision was nearly unanimous, with Cleveland Fed President Beth Hammack casting the sole dissenting vote.
• The Summary of Economic Projections (SEP) reveals only two anticipated rate cuts through 2025 and 2026, aiming for a federal funds rate of 3.4%.

The USD/CAD soared to fresh yearly highs after the Federal Reserve slashed interest rates at the December meeting while opting to adopt a gradual approach to monetary policy next year. At the time of writing, the pair trades volatile at around 1.4400.

USD/CAD rallies following a Federal Reserve rate cut and projections of four rate cuts in two years

The Federal Reserve lowered interest rates by 25 basis points, setting the target range to 4.25%-4.50%. The decision was not unanimous, with an 11 to 1 vote, as Cleveland Fed President Beth Hammack voted to hold rates. While the accompanying policy statement saw only minor adjustments from the previous meeting, traders' attention shifted to the newly released Summary of Economic Projections (SEP).

The Fed's statement highlighted solid economic growth and a gradual easing of labor market conditions. Despite this, the committee reiterated, "The risks to achieving its employment and inflation goals are roughly in balance."

According to the SEP, officials expect only two rate cuts across 2025 and 2026, which would bring the federal funds rate down to 3.4% over the next two years.

Other projections indicate that the Fed’s preferred inflation measure, the Core PCE, is expected to decline gradually, ending at 2.8% in 2024, 2.5% in 2025, and 2.2% in 2026. On the growth front, the economy is projected to expand by 2.5% in 2024, 2.1% in 2025, and 2.0% in 2026.

The Unemployment Rate is expected to end the current year at 4.4% and remain unchanged at 4.3% in 2025 and 2026.

USD/CAD Reaction to Fed’s decision

The USD/CAD refreshed four-year highs, climbing past the March 2020 peak of 1.4349, which opened the door to test the 1.4400 figure. The pair has climbed past the latter and is eyeing a 2020 peak of 1.4560, but first, buyers must clear the 1.4500 psychological figure. In the event of a pullback, the pair's first support would be 1.4400, followed by the 1.4350 figure.

• USD/CAD rises further to near 1.4330 as the Canadian Dollar weakens amid growing risks of inflation undershooting BoC’s target of 2%.
• The US Dollar consolidates ahead of the Fed’s policy meeting outcome.
• Investors expect the Fed to deliver slightly hawkish remarks on the policy outlook.

The USD/CAD pair posts a fresh more than four-year high around 1.4330 on Wednesday. The Loonie pair extends Tuesday’s rally on Wednesday, which was prompted by softer-than-expected Canadian Consumer Price Index (CPI) data for November.

The inflation report showed that the headline Consumer Price Index (CPI) rose by 1.9%, slower than estimates and the prior release of 2%. Month-on-month headline inflation remained flat, as expected. In October, the monthly headline CPI rose by 0.4%. Soft inflation data boosted expectations of more outsize interest rate cuts by the Bank of Canada (BoC). However, BoC Governor Tiff Macklem said last week that the central bank will shift to a more gradual policy-easing stance.

Additionally, political uncertainty in Canada has weighed on the Canadian Dollar (CAD). At the beginning of the week, Canadian Finance Minister Chrystia Freeland resigned after a policy clash with Prime Minister Justin Trudeau.

Meanwhile, the US Dollar (USD) stays in a tight range, with investors awaiting the Federal Reserve’s (Fed) policy outcome at 20:00 GMT. The Fed is widely expected to cut interest rates by 25 basis points (bps) to 4.25%- 4.50%, with slightly hawkish guidance.

USD/CAD has shown a stalwart rally after a breakout of the Ascending Triangle chart pattern on a weekly timeframe. The upward-sloping 20-day Exponential Moving Average (EMA) near 1.3900 suggests that the overall trend is bullish.

The 14-day Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting that a strong upside momentum is intact.

The rally in the Loonie pair could advance to the round-level figure of 1.4400 and the psychological resistance of 1.4500 if the asset breaks above 1.4350.

On the contrary, a downside move below the December 11 low of 1.4120 could drag the asset towards the December 4 high of around 1.4080, followed by the psychological support of 1.4000.

USD/CAD weekly chart

• USD/CAD has marked 1.4329, a level not seen since March 2020, on Wednesday.
• The Canadian Dollar faces challenges due to the dovish BoC and domestic political uncertainty.
• CME FedWatch tool suggests almost fully pricing in a 25 basis point cut on Wednesday.

USD/CAD extends its winning streak for the fifth consecutive day, trading around 1.4320 during the Asian hours on Wednesday. This upside could be attributed to the tepid Canadian Dollar (CAD) following dovish remarks from the Bank of Canada (BoC) Governor Tiff Macklem.

Bank of Canada (BoC) Governor Tiff Macklem stated on Monday that the central bank is preparing for a future characterized by heightened uncertainty and increased vulnerability to economic shocks. He emphasized that the BoC will evaluate the need for further policy rate cuts on a case-by-case basis and anticipates a more gradual approach to monetary policy if the economy unfolds as projected.

Meanwhile, Canadian Prime Minister Justin Trudeau is facing growing pressure to resign after Finance Minister Chrystia Freeland announced on Monday that she is stepping down from the Cabinet, according to CNN.

The Consumer Price Index (CPI) released by Statistics Canada fell to 1.9% year-over-year in November, slightly below the market expectation of 2.0%. On a monthly basis, the CPI remained flat, aligning with forecasts, after rising 0.4% in October. Meanwhile, monthly core inflation declined by 0.1%, bringing the annual core CPI inflation rate down to 1.6% from October's 1.7%.

Traders are bracing for a potential 25 basis point rate cut by the US Federal Reserve (Fed) later in the North American session. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting. Additionally, traders will closely monitor Fed Chair Jerome Powell's press conference and Summary of Economic Projections (dot-plot) after the meeting.

• USD/CAD edges higher to around 1.4310 in Wednesday’s early Asian session. 
• The Fed will likely cut interest rates by 25 bps at the December meeting on Wednesday. 
• The Canadian Dollar weakens to nearly a five-year low on the political risks.

The USD/CAD pair trades with mild gains near 1.4310 during the early Asian session on Wednesday. The Canadian Dollar (CAD) fell to the lowest level since April 2020 amid political turbulence in Canada. The markets might turn cautious ahead of the US Federal Reserve (Fed) interest rate decision, which is expected to cut the interest rates by 25 basis points (bps) on Wednesday at the end of its two-day meeting. 

The Fed is widely expected to lower borrowing costs on Wednesday for the third meeting in a row. Markets are now almost fully pricing a quarter of a percentage point cut at the Fed's December meeting, compared with about 78% odds a week ago, according to the CME FedWatch tool. The Fed’s Press Conference and the Summary of Economic Projections (SEP), or the Dot Plot, will be pored over for clues about next year's outlook.

Data released by the US Census Bureau on Tuesday showed that Retail Sales in the US rose 0.7% MoM in November, compared to the 0.5% increase (revised from 0.4%) seen in October. The reading came in better than the market expectation for a rise of 0.5%. However, the US Retail Sales data had no impact on expectations that the Fed would cut interest rates at its December meeting on Wednesday. 

On the other hand, the Loonie remains on the defensive after Canada's Deputy Prime Minister Chrystia Freeland quit Monday in a surprise move, saying she disagreed with Prime Minister Justin Trudeau over US President-elect Donald Trump's tariff threats. Canadian Prime Minister Justin Trudeau faced growing calls to resign as the resignation of Freeland marked the first open dissent against Prime Minister Trudeau from within his cabinet.

"We think this level of political turbulence will raise uncertainty levels for Canadian consumers and businesses, adding to the headwinds already facing productivity-enhancing investment," Karl Schamotta, chief market strategist at Corpay, said in a note.

• USD/CAD holds gains near 1.4280 as soft Canadian inflation data has boosted the need for more BoC interest rate cuts.
• Annual headline CPI rose at a slower pace of 1.9% in November. In the month, it remained flat.
• US Retail Sales grew sharply by 0.7%. Investors await the key Fed policy meeting.

The USD/CAD pair remains firm near 1.4280 in Tuesday’s North American session after the release of the Canadian inflation and the United States (US) monthly Retail Sales data for November.

The cooler-than-expected November Canadian inflation report has cemented expectations of further policy easing by the Bank of Canada (BoC) in 2025.

The inflation report showed that the headline Consumer Price Index (CPI) rose by 1.9%, slower than estimates and the prior release of 2%. Month-on-month headline inflation remained flat, as expected. In October, the monthly headline CPI rose by 0.4%.

BoC’s preferred core CPI measure -which excludes eight volatile items – decelerated to 1.6% from 1.7% in October. On month, the BoC preferred inflation measure deflated by 0.1%.

Meanwhile, the US Dollar (USD) ticks higher after the release of the better-than-projected US Retail Sales data. Retail Sales, a key measure of consumer spending rose by 0.7%, faster than estimates and the prior release of 0.5%.

Going forward, the major event for the US Dollar will be the Federal Reserve’s (Fed) interest rate meeting on Wednesday. The Fed is widely anticipated to cut interest rates by 25 basis points (bps) to 4.25%- 4.50%, its third cut in a row.

Investors will pay close attention to comments by Fed Chair Jerome Powell to determine whether the central bank will temporarily pause the policy-easing process at the start of 2025. According to the CME FedWatch tool, there is an almost 80% chance that the Fed will leave interest rates unchanged at 4.25%- 4.50% in the policy meeting in January.

• 
  The Dollar rallies to fresh four-year highs against a weak Canadian Dollar.
• 
  Strong US economic data and the political crisis in Canada have hammered the CAD.
• Monetary divergence between the Fed and the BoC provides additional support to the US Dollar.

 

The US Dollar keeps appreciating against the Canadian Dollar and trades right below 1.4300 for the first time in four years. Concerns about the negative impact of US tariffs on Canadian products and a political crisis in Canada are crushing the Canadian Dollar.

Canada’s finance minister, Chrystia Freeland, resigned on Monday due to disagreements with the prime minister over Trump’s tariffs threats. This has brought Trudeau’s unpopular government to the brink and increased bearish pressure on the loonie.

In the US the preliminary PMI figures released on Monday revealed that the services sector’s activity expanded at its fastest pace in three years, confirming that the economy keeps growing at a healthy pace.

Later today, the US Retail sales are expected to confirm this view, with a 0.5% monthly rise after a 0.4% increase in October. Excluding vehicles, sales of all other products are expected to have accelerated at a 0.4% pace in November from 0.1% in October.

Monetary policy divergence between the Fed and the BoC weighs in the CAD

These strong figures have not challenged the view that the Fed will cut rates by 25 basis points on Wednesday but they have raised concerns about a hawkishly tilted statement, pointing to a shallow easing cycle in 2025.

The Bank of Canada, on the other hand, slashed interest rates by 50 bps last week. This is the second consecutive such move and the Bank has hinted towards further easing.

BoC’s Governor Macklem confirmed that theory on Monday and added weigh on an already weak loonie, warning that the below forecast economic growth will keep inflation subdued.

 

USD/CAD broke out from a large consolidation (above 1.3970) resulting in extension of uptrend, Societe Generale’s FX analysts note.

Upward move is a bit stretched

“Daily MACD is registering multi-month highs; this highlights the move is a bit stretched. However, signals of pullback are not yet visible.”

“Next potential objectives are located at 1.4385, the upper limit of a steep channel and projection near 1.4480. Defense of channel lower limit at 1.4110 is crucial for averting short-term decline.”

• USD/CAD marked 1.4290 on Tuesday, a level last seen in April 2020.
• The US Dollar retraces its two days of losses amid higher Treasury yields.
• The CAD faces headwinds amid political uncertainty, as Prime Minister Justin Trudeau encounters growing calls to resign.

USD/CAD continues its winning streak for the fourth consecutive day, trading around its fresh multi-year high at 1.4290 during the European hours on Tuesday. The pair gains support as the US Dollar (USD) retraces its losses from the previous two sessions, which could be attributed to the higher Treasury yields.

The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trades near 107.00 with 2- and 10-year yields on US Treasury bonds standing at 4.26% ad 4.41%, respectively, at the time of writing.

Traders are bracing a potential interest rate cut by the US Federal Reserve (Fed) on Wednesday, with attention largely focused on the Fed's projections for 2025. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting.

The Canadian Dollar (CAD) faces challenges due to dovish remarks from the Bank of Canada (BoC) Governor Tiff Macklem. On Monday, Macklem stated that the BoC is preparing for a future marked by greater uncertainty and increased vulnerability to shocks. He added that the central bank will assess the need for further reductions in the policy rate one decision at a time and expects a more gradual approach to monetary policy if the economy evolves as expected.

Additionally, political challenges in Canada could weigh on the CAD. Prime Minister Justin Trudeau is facing mounting calls to resign following Finance Minister Chrystia Freeland’s announcement on Monday that she is stepping down from the Cabinet, according to CNN.

Traders will likely observe the Canadian November Consumer Price Index (CPI) inflation data is due later on Tuesday. Meanwhile, November’s US retail sales data is expected to be released in the North American session.

• USD/CAD ticks higher for the fourth straight day amid a combination of supporting factors.
• Political development in Canada, subdued Oil prices and dovish BoC undermine the Loonie.
• Bets that the Fed will pause its rate-cutting cycle act as a tailwind for the USD and the major.

The USD/CAD pair trades with a positive bias for the fourth straight day on Tuesday and remains close to its highest level since April 2020 touched the previous day. Spot prices currently trade just above mid-1.4200s and the fundamental backdrop supports prospects for a further near-term appreciating move. 

The Canadian Dollar (CAD) continues to be weighed down by the Bank of Canada's (BoC) aggressive policy easing and dovish outlook, projecting lower growth in the final quarter of this year. Meanwhile, an unexpected resignation from Canadian Finance Minister Chrystia Freeland adds a layer of political uncertainty. Adding to this, subdued Crude Oil prices undermine the commodity-linked Loonie and act as a tailwind for the USD/CAD pair. 

The US Dollar (USD), on the other hand, remains on the defensive as traders seem reluctant and opt to wait for more cues about the Federal Reserve's (Fed) rate-cut path before placing fresh directional bets. Hence, the focus will remain glued to the outcome of a two-day FOMC meeting on Wednesday, which, along with the accompanying policy statement and Fed Chair Jerome Powell's comments at the post-meeting conference, will drive the USD demand. 

Heading into the key central bank event risk, the growing market conviction that the Fed will adopt a more cautious stance on cutting interest rates remains supportive of elevated US Treasury bond yields. Furthermore, persistent geopolitical risks offer support to the safe-haven Greenback. This, in turn, validates the near-term positive outlook for the USD/CAD pair as trades now look to the US Retail Sales figures for some later during the North American session.

• USD/CAD drifts lower to around 1.4235 in Tuesday’s Asian session. 
• Fed is likely to cut interest rates by 25 bps at the December meeting on Wednesday.
• BoC Governor Tiff Macklem said the central bank is preparing for a shock-prone’ future.

The USD/CAD pair weakens to near 1.4235, snapping the three-day winning streak during the Asian trading hours on Tuesday. The Canadian November Consumer Price Index (CPI) inflation data is due later on Tuesday. Meanwhile, the US Dollar Index (DXY), a measure of the USD's value relative to its most significant trading partners' currencies, edges lower to around 106.75 as traders await the US Federal Reserve (Fed) interest rate decision on Wednesday for fresh catalysts. 

Markets widely expect the Fed to lower its benchmark interest rate by a smaller 25 basis points (bps) at its December meeting on Wednesday as the US economy faces sticky inflation and a cooler labor market. After the meeting, Fed Chair Jerome Powell’s press conference and the updated economic projections will be closely watched. If the Fed officials deliver hawkish comments or signal a slowdown in rate cuts, this could boost the Greenback against the Canadian Dollar (CAD). 

"We think that the economic forecasts will show better growth and firmer inflation this year and that the median interest rate forecast dots will be revised to show three cuts next year instead of four, as in the September dots," said JPMorgan chief US economist Michael Feroli.

On the other hand, soft language from Bank of Canada (BoC) Governor Tiff Macklem could weigh on the Loonie. BoC’s Macklem said on Monday that the Canadian central bank is preparing for a future that looks more uncertain and more prone to shocks. Macklem added that the BoC will assess the need for further reductions in the policy rate one decision at a time and expects a more gradual approach to monetary policy if the economy evolves as expected. 

• The US Dollar remains firm against a softer CAD and tests long-term highs at 1.4240
• A dovish BoC and concerns about higher tariffs on Canadian products are weighing on the CAD,
• Technically, the is likely to meet significant resistance at the 1.4250-60 area.

The US Dollar keeps trading firm against its weaker Canadian Counterpart. The mild CAD recovery attempt seen on Friday was contained above the 1.4200 level, and the pair is crawling higher again on Monday, to test four-year highs at 1.4240.

The monetary policy divergence between the Federal Reserve and the Bank of Canada is the main support for the pair. Beyond that, US President-elect Trump's threats of higher tariffs on Canadian products, are an additional weight to the Loonie.

Cautious easing by the Fed vs large rate cuts by the BoC

The US Federal Reserve is widely expected to cut its benchmark interest rate by 25 basis points on Wednesday and to proceed cautiously next year. The CME Fed watch tool shows between one or two more rate cuts next year as the most likely scenario.

The Bank of Canada, on the contrary, slashed interest rates by 50 bps last week in the second such consecutive move. The Bank has slashed rates by 1.75% to the current 3.25% since June and is likely to trim them lower. Governour Macklem will speak later today and he might support that view.

On the Other hand, the US Dollar is looking for direction as the impact of the stronger-than-expected US employment figures waned. Markets are pricing a nearly 90% chance that the Fed will cut rates by 25 basis points next week, which is keeping US Dollar rallies limited.

In Canada, the BoC meets this week and is expected to deliver a large rate cut on Wednesday. Downbeat Canadian Employment and business activity figures sustain that view. This is likely to weigh on a deeper CAD recovery.

USD/CAD Technical Analysis: Above 1.4250, the target is 1.4315

The Canadian Dollar is trading within a bullish channel. Technical indicators are positive, but the 1.4250/60, where the 127.20% Fibonacci extension meets the channel top might take some time to give up.

Above here, the next target would be the 161.8% Fibonacci level, at 1.4315. Supports are at 1.4200 (December 11 high) and December 12 low at 1.4235.

USD/CAD 4 Hour Chart

• USD/CAD maintains its position below the multi-year high of 1.4245 marked on Friday.
• CME FedWatch tool suggests full pricing in a quarter basis point cut by the Fed on Wednesday.
• The Canadian Dollar faced challenges as the BoC eased its monetary policy aggressively.

USD/CAD inches lower after marking a multi-year high of 1.4245 on Friday, trading around 1.4230 during the Asian hours on Monday. This upside could be attributed to the subdued US Dollar (USD) amid tepid US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision, with an increased likelihood of a 25 basis point rate cut in its final monetary policy meeting of 2024.

Market analysts predict that the US central bank will cut rates while preparing the market for a pause, given the robust US economy and inflation stalling above 2%. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting.

The Canadian Dollar (CAD) faced challenges as the Bank of Canada (BoC) eased its monetary policy aggressively. The BoC slashed its borrowing rates by 50 bps to 3.25% last week, as expected, but guided a more gradual easing approach as policy rates have come down significantly. BoC Governor Tiff Macklem warned that US President-elect Donald Trump’s tariffs on their exports will have a significant impact on the economy.

The commodity-linked CAD may receive upward support from crude Oil prices due to the rising likelihood of tighter supplies driven by the implementation of additional US sanctions on major producers Russia and Iran. West Texas Intermediate (WTI) Oil price trades around $70.50 per barrel at the time of writing.

On Friday, US Treasury Secretary Janet Yellen said that the United States is considering further sanctions on "dark fleet" tankers and may also impose sanctions on Chinese banks to curb Russia's Oil revenue and access to foreign supplies, which are fueling its war in Ukraine, per Reuters.

• USD/CAD sees more upside as BoC Macklem kept doors open for more interest rate cuts.
• Monthly Canadian Manufacturing Sales rose by 2.1%, faster than expectations of 1.3%.
• The Loonie pair remains firm, holding the Ascending Triangle breakout.

The USD/CAD pair refreshes more than a four-year high around 1.4240 on Friday. The Loonie pair performs strongly even though the US Dollar (USD) gives up intraday gains, suggesting a sharp weakness in the Canadian Dollar (CAD).

The CAD remains an underperformer, as the Bank of Canada (BoC) maintains an aggressive policy-easing stance. Price pressures have come under control, and labor demand is weak.

The BoC cuts its interest rates by 50 basis points (bps) to 3.25% on Wednesday. This was the second straight jumbo interest rate cut by the BoC. BoC Governor Tiff Macklem guided a gradual policy-easing cycle as policy rates have come down significantly. The central bank has reduced interest rates by 175 bps this year.

On the economic data front, monthly Manufacturing Sales for October were better than expected. Sales in the manufacturing sector rose by 2.1%, faster than estimates of 1.3%, after contracting by 0.6% in September, which was downwardly revised from 0.5%.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls after failing to sustain above the key resistance of 107.00.

USD/CAD has shown a robust rally after a breakout of the Ascending Triangle formation on a weekly timeframe, which has resulted in volatility expansion. The upward-sloping 20-week Exponential Moving Average (EMA) near 1.3900 suggests that the near-term trend is bullish.

The 14-week Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum.

Going forward, a decisive break above the intraday high near 1.4240 would drive the asset towards the round-level resistance of 1.4300 and 31 March 2020 high of 1.4350.

On the flip side, a downside move below the November 25 low of 1.3928 would drag the major toward the round-level support of 1.3900, followed by the November 8 low of 1.3860.

USD/CAD weekly chart

• USD/CAD grips gains near a fresh four-year high at 1.4245 as the US Dollar performs strongly.
• The Fed is widely anticipated to cut interest rates by 25 bps on Wednesday.
• The Canadian economic outlook has weakened amid worries over likely import tariffs by US Trump.

The USD/CAD pair holds gains near a fresh more than four-year high at 1.4245 in Friday’s European session. The Loonie pair strengthens as the US Dollar (USD) performs strongly against its major peers on expectations that the Federal Reserve (Fed) could pause its policy-easing cycle in January after cutting interest rates by 25 basis points (bps) to 4.25%-4.50% in the policy meeting on Wednesday.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, climbs above 107.00.

According to the CME FedWatch tool, the Fed is certain to cut interest rates on Wednesday, but there is an almost 75% chance that it will keep rates steady in January’s monetary policy meeting. The major contribution to higher bets supporting the Fed taking a steady interest rate decision in January has come from signs that the disinflation process has stalled.

The United States (US) core Consumer Price Index (CPI) – which excludes volatile food and energy prices – has remained steady at 3.3% since September after accelerating from 3.2% in August. Meanwhile, the annual US headline Producer Price Index (PPI) has accelerated at a faster-than-expected pace to 3% in November, the highest level seen since March 2023.

Meanwhile, the Canadian Dollar (CAD) underperforms against the US Dollar for almost three months as the Bank of Canada (BoC) is easing its monetary policy aggressively. The BoC slashed its borrowing rates by 50 bps to 3.25% on Wednesday, as expected, but guided a more gradual easing approach as policy rates have come down significantly.

After the policy decision, BoC Governor Tiff Macklem warned that US President-elect Donald Trump’s tariffs on their exports will have a significant impact on the economy.