CFD Trading Rate US Dollar vs Canadian Dollar (USDCAD)

• USD/CAD oscillates in a narrow band and is influenced by a combination of diverging forces.
• Reduced bets for a jumbo BoC rate cut and an uptick in Crude Oil prices underpin the Loonie.
• The USD holds steady near the YTD peak and offers support amid a bullish technical setup.

The USD/CAD pair edges higher during the Asian session on Friday, albeit it lacks follow-through buying and remains below the 1.4000 psychological mark amid mixed cues. 

Hotter Canadian CPI print on Tuesday forced investors to scale back their bets for a big rate cut by the Bank of Canada (BoC) in December. Apart from this, this week's goodish recovery in Crude Oil prices, from over a two-month low touched on Monday, underpins the commodity-linked Loonie and acts as a headwind for the USD/CAD pair. The downside, however, remains cushioned on the back of a strong bullish sentiment surrounding the US Dollar (USD), which continues to draw support from bets for a less dovish Federal Reserve (Fed).

From a technical perspective, the USD/CAD pair showed some resilience below the 100-period Simple Moving Average (SMA) on the 4-hour chart. The subsequent uptick, along with positive oscillators on the daily chart, suggests that the path of least resistance for spot prices is to the downside. That said, the lack of any meaningful buying interest warrants some caution before confirming that the recent pullback from the 1.4100 mark, or the highest level since May 2020 has run its course and positioning for any further appreciating move.

Meanwhile, the 100-period SMA on the 4-hour chart, currently pegged around mid-1.3900s, and the overnight swing low, near the 1.3930 area, now seems to protect the immediate downside ahead of the 1.3900 mark. A convincing break below the latter could be seen as a fresh trigger for bearish traders and accelerate the fall towards the 1.3860-1.3855 intermediate support en route to the monthly low, around the 1.3820-1.3815 region. This is closely followed by the 1.3800 round figure, which if broken decisively will set the stage for deeper losses. 

On the flip side, sustained strength and acceptance above the 1.4000 psychological mark will be seen as a key trigger for bullish traders. The subsequent move-up should allow the USD/CAD pair to surpass the weekly top high, around the 1.4035 area, and aim to conquer the 1.4100 round figure. The move up could extend further towards the 1.4170 area en route to the 1.4200 mark, mid-1.4200s, the 1.4300 round figure and the 1.4340 supply zone.

USD/CAD 4-hour chart

• USD/CAD edges higher to 1.3975 in Friday’s early Asian session.
• The cautious mood of the Fed officials and the Trump trade support the USD. 
• The markets reduced the odds of a 50 bps rate cut at the BoC’s December 11 policy meeting. 

The USD/CAD pair trades with mild gains around 1.3975 during the early Asian session on Friday. The strengthening of the US Dollar (USD) to new 2024 peaks provides some support to the pair. Investors brace for the flash S&P Global Manufacturing and Services Purchasing Managers Index (PMI), along with the final Michigan Consumer Sentiment, which is due later on Friday. 

Recent comments from the Federal Reserve (Fed) officials boost the USD broadly. Chicago Fed President Austan Goolsbee said on Thursday that it may make sense to the slow pace of Fed rate cuts as inflation is on its way down to 2%. Additionally, markets expect Trump's proposed policies including tax cuts, trade tariffs and deficit spending could trigger a fresh wave of inflation and could compel the US Fed to slow the pace of rate reductions. 

The rising expectation that the Fed may take a slower course in its rate cut path continues to underpin the Greenback. Meanwhile, the US Dollar Index (DXY), which measures the USD against a basket of currencies, currently trades near 107.00, the highest level since November 2023. Futures traders are now pricing in a 57.8% odds that the Fed will cut rates by a quarter point, down from around 72.2 % last week, according to data from the CME FedWatch Tool. 

On the other hand, the possibility that the Bank of Canada (BoC) would deliver a second oversized rate cut next month has diminished after the latest Canadian inflation report came in slightly hotter than expected. The markets have priced in a nearly  23% chance of a 50 basis-points (bps) rate cut by the BoC at the December meeting, down from nearly 40% before the inflation report. 

• USD/CAD sustains above 1.3950 as the near-term outlook of the US Dollar remains firm.
• US Initial Jobless Claims came in lower at 213K than estimates of 220K.
• Traders have trimmed BoC outsize interest rate cut bets for the December meeting.

The USD/CAD pair ticks down but holds the immediate support of 1.3950 in Thursday’s North American session. The Loonie pair strives to resume its upside journey on US Dollar’s (USD) firm near-term outlook backed by growing doubts over whether the Federal Reserve (Fed) will cut interest rates in the December meeting.

The Fed started its policy-easing cycle with a 50 basis points (bps) interest rate cut in September and took forward the process to this month with 25 bps interest rate reduction. However, traders seem to be indecisive about the continuation of the rate-cut cycle for next month on expectations that the implementation of President-elect Donald Trump’s agenda will boost United States (US) inflation and economic growth.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks down in the North American session to near 106.50 after the release of the Initial Jobless Claims data for the week ending November 15. The Greenback drops even though the Department of Labor reported that individuals claiming jobless benefits for the first time came in lower at 213K than estimates of 220K and the former release of 219K, upwardly revised from 217 K.

In the Canadian region, traders have reduced some bets supporting a second consecutive larger-than-usual interest rate cut of 50 basis points (bps) by the Bank of Canada (BoC) in the December meeting. Market speculation for the BoC 50 bps interest rate cut diminished slightly after the faster-than-expected growth in the Canadian Consumer Price Index (CPI) data for October. The CPI report showed that the headline inflation rose by 2%, faster than estimates of 1.9% and the former release of 1.6% on year.

For more cues about the likely interest rate action in the December meeting, investors will pay close attention to the monthly Canadian Retail Sales for September, which will be published on Friday. Economists expect Retail Sales to have grown steadily by 0.4%.

The Canadian Dollar (CAD) is little changed on the session. Soft stocks contrast with generally firm commodities on the session while short-term cash bond spreads are narrowing somewhat, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CAD drifts back to the mid-1.39

“Mixed short-term impulses for the CAD and limited domestic data releases (Industrial Product Prices this morning) leave markets with little to go on in terms of the CAD’s direction. Cross flows (EUR/CAD below 1.47 for the first time since July) may be giving the CAD a little support but even mild USD/CAD losses leave spot straying a bit more conspicuously from estimate fair value (1.4032 today)”.

“Short-term trend momentum has weakened to near neutral levels following the USD’s drift back from its early week peak. Spot continues to find support around 1.3950/60 but there are some tentative, CAD-positive signs on the weekly chart, with the USD failing to hold last week’s break above 1.4040 resistance (at this point).”

“USD weakness below 1.3950 could see spot ease back to the mid/upper 1.38s. Resistance is 1.4000/10.”

• USD/CAD depreciates as the commodity-linked CAD receives support from improved Oil prices.
• Ukraine has launched British Storm Shadow cruise missiles into Russia on Wednesday.
• Boston Fed President Susan Collins emphasized the importance of a cautious approach in making policy decisions.

USD/CAD retraces its recent gains from the previous day as the commodity-linked Canadian Dollar (CAD) receives support from the improved crude Oil prices amid rising fears of supply disruption amid geopolitical tensions. The pair trades around 1.3960 during the European session on Thursday.

West Texas Intermediate (WTI) crude Oil price recovers recent losses registered in the previous session, trading around $69.50 per barrel at the time of writing. Oil prices found support after Ukraine launched British Storm Shadow cruise missiles into Russia on Wednesday, marking another deployment of Western weaponry against Russian targets. This followed Ukraine's use of U.S. ATACMS missiles the day before. 

Meanwhile, the Canadian Dollar may gain support as expectations for a deeper-than-usual interest rate cut by the Bank of Canada (BoC) in December have diminished. Following hotter-than-expected inflation data on Tuesday, markets are now pricing a nearly 26% probability of a 50-basis-point (bps) rate cut by the BoC in December, down from 37% before the CPI release.

The US Dollar (USD) remains steady due to cautious remarks by Federal Reserve (Fed) officials. Boston Fed President Susan Collins stated on Wednesday that while more interest rate cuts are necessary, policymakers should proceed cautiously to avoid moving too quickly or too slowly, according to Bloomberg. Meanwhile, Fed Governor Michelle Bowman highlighted that inflation remains elevated over the past few months and stressed the need for the Fed to proceed cautiously with rate cuts.

A Reuters poll indicated that nearly 90% of economists (94 out of 106) anticipate a 25bps cut in December, lowering the fed funds rate to 4.25%-4.50%. Economists predict shallower rate cuts in 2025 due to the risk of higher inflation from President-elect Trump's policies. The fed funds rate is forecasted to be 3.50%-3.75% by the end of 2025, which is 50bps higher than last month’s projection.

• USD/CAD softens to near 1.3970 in Thursday’s early Asian session. 
• Futures traders dialed back their expectations of a Fed rate cut at the December meeting.
• Lower crude oil prices undermine the commodity-linked Loonie.

The USD/CAD pair trades on a softer note around 1.3970 amid the modest decline in the Greenback during the early Asian session on Thursday. Traders will keep an eye on the US weekly Initial Jobless Claims, the Philadelphia Fed Manufacturing Index, Existing Home Sales, and the CB Leading Index, which are due later on Thursday. Also, the Federal Reserve’s (Fed) Hammack and Goolsbee are due to speak.

The recent strong US economic data, sticky inflation and Donald Trump's victory in the US presidential election have underpinned the US Dollar (USD) against the Loonie for the time being. Markets expect that Donald Trump’s administration will reignite inflation and slow the path of rate cuts from the Fed.

Additionally, the cautious tone from the Fed officials might cap the downside for the USD. On Wednesday, Fed governor Michelle Bowman emphasized that inflation still elevated in the last few months and the Fed needed to be cautious on rate cuts. 

Futures traders have dialed back their expectations of a rate reduction at the December Fed meeting, according to data from the CME FedWatch Tool. They are now pricing in around 54% possibility that the Fed will cut rates by a quarter point, down from around 80% last week.

On the Loonie front, the fall in crude oil prices weighs on the commodity-linked Canadian Dollar (CAD). Nonetheless, the lower expectation that the Bank of Canada (BoC) will cut a deeper-than-usual interest rate in December might help limit the CAD’s losses. The markets are now pricing in nearly a 26% chance of a 50 basis point (bps) rate cut by the BoC next month, down from 37% before the CPI data release. 

The Canadian Dollar (CAD) has slipped back somewhat after gains met resistance in the mid-1.3950 area, as expected, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

CAD rebound stalls around 1.3950

“The marginally hotter than expected CPI data for Canada yesterday should tilt risks a bit more squarely towards a 25bps cut from the BoC next month. But rates traders are not easily persuaded. Swaps are little changed from pre-CPI indications, pricing in around 33bps of cuts for next month—about 30% risk of a 50bps move in effect.”

“Wide short-term spreads still represent a significant headwind for the CAD. Spot fair value is estimated at 1.4015 this morning. The USD’s positive reaction to the test of support at 1.3950 suggests a minor low at least is in for spot. Price action is mildly USD positive on the short-term charts on the session and the rebound sustains the broader uptrend in funds in place since late September.”

“The minor dip in the USD has relieved short-term overbought conditions a little—but just enough to facilitate a renewed push higher. Resistance is 1.4040 and 1.41.”

• The USD/CAD faces an immediate barrier at the nine-day EMA of 1.3979 level.
• The nine-day EMA is above the 14-day EMA, signifying ongoing strength in short-term price momentum.
• The pair finds support around the 14-day EMA at the 1.3958 level, followed by the psychological 1.3950 level.

The USD/CAD pair holds ground after two days of losses, trading around 1.3970 during the European hours on Wednesday. The daily chart analysis indicates that the pair is trending upwards within an ascending channel pattern, suggesting a bullish bias.

The 14-day Relative Strength Index (RSI) is above the 50 level, confirming continued bullish momentum. Additionally, the nine-day Exponential Moving Average (EMA) is positioned above the 14-day EMA, indicating persistent strength in short-term price momentum.

On the upside, the USD/CAD pair faces an immediate resistance at the nine-day EMA of 1.3979 level. If the pair breaks above this level, it may move toward the region around the upper boundary of the ascending channel at the 1.4130 level. A breakout above this channel could reinforce the bullish bias and drive the pair toward the next key resistance level of 1.4173, last seen in May 2020.

Regarding support, the USD/CAD pair could test the immediate 14-day EMA at the 1.3957 level. A break below this level could weaken the bullish bias, putting downward pressure on the pair to test the lower boundary of the ascending channel at the 1.3920 level.

USD/CAD: Daily Chart

• USD/CAD consolidates in a range near a one-week low amid mixed fundamental cues.
• Hotter Canadian CPI tempers bets for a bigger BoC rate cut and underpins the CAD.
• Rebounding US bond yields revive USD demand and offer some support to the pair.

The USD/CAD pair finds some support near the mid-1.3900s, or a one-week low touched during the Asian session on Wednesday and for now, seems to have stalled this week's retracement slide from the highest level since May 2020. Spot prices, however, struggle to gain any meaningful traction, warranting some caution for bullish traders amid mixed fundamental cues.

Data published on Tuesday showed that Canada's annual inflation rate rose more than expected, to 2.0% in October and forced investors to scale back their bets for a big rate cut by the Bank of Canada (BoC) in December. This, in turn, is seen offering some support to the Canadian Dollar (CAD) and acting as a headwind for the USD/CAD pair. That said, subdued Crude Oil prices keep a lid on any meaningful appreciation for the commodity-linked Loonie.

Despite the prospect of supply disruptions from an escalation in the Russia-Ukraine conflict, signs of a build in US stockpiles fail to assist Crude Oil prices to build on a two-day-old recovery from over a two-month low touched on Monday. In fact, the American Petroleum Institute (API) reported that US inventories grew much more than expected, by 4.75 million barrels in the week to November 15, pointing to increased supply in the world’s biggest oil producer.

Apart from this, the emergence of some US Dollar (USD) dip-buying should limit any meaningful downside for the USD/CAD pair. Investors now seem convinced that US President-elect Donald Trump's policies will spur economic growth and rekindle inflationary pressures. This could restrict the Federal Reserve (Fed) from cutting interest rates, which, in turn, triggers a fresh leg up in the US Treasury bond yields and helps revive the USD demand. 

Moving ahead, investors now look forward to speeches by influential FOMC members for cues about the future rate-cut path. This will play a key role in driving the US bond yields and the USD later during the North American session. Furthermore, traders will take cues from the official US Oil inventory data, which should influence the black liquid and contribute to producing short-term trading opportunities around the USD/CAD pair.

• USD/CAD trades with mild negative bias near 1.3955 in Wednesday’s early Asian session. 
• The geopolitical risks might boost the safe-have currency like the USD. 
• Canada's CPI inflation jumps to 2.0% in October from 1.6% in September. 

The USD/CAD pair trades with mild losses around 1.3955 during the early Asian session on Wednesday. The hotter-than-expected Canadian inflation report for October supports the Canadian Dollar (CAD) against the Greenback. However, the renewed geopolitical tensions between Russia and Ukraine might cap the pair’s downside.

Reuters reported late Tuesday that Ukraine used US ATACMS to strike Russian territory for the first time, marking a significant uptick in hostilities on the 1,000th day of the conflict. The immediate reaction in markets faded when Russian Foreign Minister Sergei Lavrov said that the government would "do everything possible" to avoid the onset of nuclear war. The US said that it had not adjusted its nuclear posture in response. Investors will closely monitor the developments surrounding the geopolitical risks. Any signs of escalation could boost the safe-haven flows, benefiting the Greenback. 

On the Loonie front, traders trim their bets on a jumbo rate cut by the Bank of Canada (BoC) in December after Canada's annual inflation rate rose more than expected in October. Data released by Statistics Canada on Tuesday showed that the country’s Consumer Price Index (CPI) rose by 2.0% YoY in October, compared to a 1.6% gain in September, hotter than the market expectations of a 1.9% increase. On a monthly basis, the CPI increased by 0.4% versus -0.4% prior and above the market consensus of 0.3%. 

The markets are now pricing in nearly 26% odds of a 50 basis point (bps) rate cut by the BoC next month, down from 37% before the CPI data release. Traders will take more cues from the Canadian Gross Domestic Product (GDP) data next week and employment data early next month, which might influence the BoC’s decision on the size of the rate reduction.

USD/CAD has reached our end of year target of 1.40 and we fully expect the pair to reach the 1.42 level we highlighted for Q1, Rabobank’s FX analysts Molly Schwartz and Christian Lawrence note.

USD/CAD likely to reach 1.46 next year

“That said, given two main drivers we outline below, we now expect further extension to the upside with USD/CAD likely to reach 1.46 next year, just shy of the highs from 2016 and 2020.We have seen a decrease in USD/CAD correlations of late but fully expect a resumption of interest rate differential driven moves in 2025.”

“Our proprietary FX 1m vol index spiked on November 5th up to a high of 8.27%, and has since depressed to 6.92%. USD/CAD 1m implied volatility has moved in kind, spiking on November 5th, peaking at 6.22%. Vols have declined since that juncture, down to 5.81%.”

“We expect a further widening of US-CA rate differentials will be the primary driver of further upside for USD/CAD deep into 2025. Non-commercial speculators have been net short CAD since August of 2023. Net shorts are currently sitting at -182,389, 3.26 standard deviations below the 5yr average (-22,041).”

The Canadian Dollar (CAD) had a mildly better day yesterday to advance to the low 1.40s after peaking just above 1.41. Spot is little changed on the session so far today, despite the drop in global stocks, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CAD little changed on the day

“Spreads are narrowing somewhat from the early November peak, allowing for some consolidation in the CAD’s recent losses—and a moderate improvement in the CAD’s estimated fair value (1.4054 today). The CAD might be able to steady in the short run but the scope for significant gains remains limited. Canadian inflation data this morning is expected to reflect a pause in the recent trend of improvement in price data.”

“The street is looking for a 0.3% increase in the October month (Scotia anticipates slightly warmer price growth of 0.4%) and a 1.9% rise in the year (up from September’s 1.6%). Core prices are expected to come in at 2.4% for the Median and Trim measures (up a little and unchanged respectively from September). Slightly firmer inflation data may see Dec swaps pare back a little of the 35bps of easing priced in for next month’s BoC decision.”

“The CAD had a technically positive session overall yesterday, with funds forming a bearish engulfing line on the daily chart. With oscillators flashing “overbought” on a few fronts, price action would typically boost chances of a correction in USD strength. But the underlying trend higher in the USD remains strong and there has been no desire to push the USD any lower over the course of the session so far. I still rather think the USD is likely to find firm support on dips to the 1.3950/00 zone with a push under 1.3945/50 really needed to boost the CAD.”

• USD/CAD drops sharply below 1.4000 as Canadian inflation grew faster than expected in October.
• Higher-than-expected US inflation data might weigh on BoC large rate cuts prospects for December.
• The US Dollar falls back despite dismal market sentiment amid geopolitical tensions.

The USD/CAD pair falls sharply after the release of the hotter-than-expected Canadian Consumer Price Index (CPI) report for October. The CPI report showed that the headline inflation accelerated to 2%, faster than expectations of 1.9% and from 1.6% in September on year. Month-on-month headline inflation rose by 0.4%, the same pace at which price pressures decelerated in the previous month. Economists expected the monthly headline CPI to grow by 0.3%.

Faster-than-expected growth in inflationary pressures would weigh on market expectations for a second consecutive larger-than-usual interest rate cut of 50 basis points (bps) by the Bank of Canada (BoC) in the December meeting. However, the BoC might continue its policy-easing spell as the central bank is worried about a higher jobless rate. Canada’s Unemployment Rate was recorded at 6.5% in October, much higher than what is needed to maintain a full employment environment.

Meanwhile, dismal market sentiment due to a fresh escalation in the Russia-Ukraine war has strengthened the appeal of safe-haven assets. S&P 500 futures have posted significant losses in the North American session.

The war situation between Russia and Ukraine renewed after President Vladimir Putin’s approval of updating the nuclear doctrine, a move followed by the launch of United States (US) made and supplied ballistic missiles by Ukraine deep in their territory.

Moscow warned that the approval of US President Joe Biden for launching long-range missiles in the Russian region is unacceptable and could lead to a third world war.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls back after failing to extend recovery above the key resistance of 106.70. Going forward, the US Dollar (USD) will be influenced by market expectations for the Federal Reserve’s (Fed) monetary policy action in the December meeting. Trades are slightly confident that the Fed will cut interest rates by 25 bps to 4.25%-4.50% next month, according to the CME FedWatch tool.

• USD/CAD holds above 1.4000 and draws support from a combination of factors.
• Bearish Crude Oil prices undermine the Loonie and act as a tailwind for the pair.
• The emergence of fresh USD buying favors bulls ahead of the Canadian CPI print.

The USD/CAD pair finds some support near the 1.4000 psychological mark on Tuesday and for now, seems to have stalled its retracement slide from the highest level since May 2020. Traders, however, remain on the sidelines and keenly await the release of Canadian consumer inflation figures before placing fresh directional bets.

The headline Canadian Consumer Price Index (CPI) is estimated to rise by 0.3% in October and the yearly rate is anticipated to have increased from 1.6% in September to 1.9%. A softer-than-expected reading will reinforce market bets for another jumbo interest rate cut by the Bank of Canada (BoC) in December. This, in turn, might continue to weigh on the Canadian Dollar (CAD) and assist the USD/CAD pair to resume its recent well-established uptrend witnessed over the past two months or so.

Heading into the key data risk, signs that supply tightness was easing keep a lid on the overnight recovery in Crude Oil prices from over a two-month low and undermine the commodity-linked Loonie. Furthermore, expectations that US President-elect Donald Trump's policies will boost inflation and limit the scope for further interest rate cuts by the Federal Reserve (Fed) revive the US Dollar (USD) demand. These turn out to be key factors acting as a tailwind for the USD/CAD pair. 

Meanwhile, the aforementioned fundamental backdrop favors the USD bulls and suggests that the path of least resistance for the currency pair remains to the upside. Hence, any immediate market reaction to strong Canadian CPI print might still be seen as a buying opportunity and is more likely to be short-lived. Bullish traders, however, need to wait for sustained strength and acceptance above the 1.4100 mark before placing fresh bets and positioning for any further appreciating move.

• USD/CAD gains ground to around 1.4020 in Tuesday’s Asian session.
• The rising geopolitical risks support the USD. 
• The Canadian CPI inflation report will be in the spotlight on Tuesday. 

The USD/CAD pair trades in positive territory near 1.4020 on Tuesday during the Asian trading hours. The resurgence of geopolitical tensions in the Middle East and in the Russia-Ukraine front boost the safe-haven currency like the Greenback. Investors will closely watch Canada’s Consumer Price Index (CPI) inflation data, which is due later on Tuesday.

Citing two US officials familiar with the decision, CNN News reported on Sunday that US President Joe Biden's administration has authorized Ukraine to use US arms to strike inside Russia in a significant reversal of Washington's policy in the Ukraine-Russia conflict. Investors will monitor the development surrounding geopolitical risks. Any signs of escalation could lift the US Dollar (USD) against the Loonie. 

Additionally, markets expect that Donald Trump’s administration will reignite inflation and slow the path of rate cuts from the Federal Reserve (Fed). This, in turn, contributes to the USD’s upside. Futures markets hint at 58.7% odds of a Fed rate cut in December, though expectations for rate cuts through 2025 have moderated to 77 basis points (bps).

On the Loonie front, the Canadian CPI inflation is expected to rise to 1.9% YoY in October from 1.6% in the previous reading, while the monthly CPI is estimated to show an increase of 0.3%. Any signs of hotter inflation in the Canadian economy could lift the Canadian Dollar (CAD) and act as a headwind for USD/CAD. 

The Canadian Dollar (CAD) is little changed to start the week. There is no incentive to push the CAD higher at this point while yield differentials remain so favourable for the USD so stability or, more likely, more CAD softness are the only alternatives for spot trends in the short run, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CAD steadies while spreads remain wide

“Spot is sitting close to estimated fair value today (1.4122). Note that BoC rate cuts have rekindled the domestic housing market. October home sales rose 7.7% over September to reach the highest level in more than two years.”

“USD/CAD is consolidating just below 1.41. Price trends remain broadly USD-bullish following last week’s strong close. There are no signs on the short– or longer-term charts that the USD rally is poised to reverse at this point and while oscillator signals are still extending deeper into overbought levels, these conditions can persist for extended periods of time.”

“Minor dips will remain wellsupported. Key support is 1.3945/50. Longer run trends are leaning towards a retest of the 2020 high just under 1.47.”

• USD/CAD stays firm near 1.4100 as the US Dollar performs strongly across the board.
• Fed Powell doesn’t see any urgency for lowering interest rates aggressively.
• Traders await Canadian inflation data for fresh BoC interest rate cues.

The USD/CAD pair holds into gains near a fresh more than four-year high around 1.4100 in Monday’s European session. The Loonie pair strives to maintain its winning spell for the seventh trading day on Monday on multiple tailwinds: strength in the US Dollar (USD) across the board on likely acceleration in the United States (US) inflation due to President-elected Donald Trump’s victory in both houses and weakness in the Canadian Dollar (CAD) on increasing Bank of Canada (BoC) dovish bets.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, clings to gains near a fresh yearly high of 107.00. Market sentiment is slightly cautious as investors expect the Federal Reserve (Fed) to follow a more gradual policy-easing approach. S&P 500 futures trade cautiously during European trading hours.

On Thursday, Fed Chair Jerome Powell pushed back expectations of aggressive interest rate cuts but affirmed that the policy-easing cycle is intact, with inflation remaining on a sustainable track toward the bank’s target of 2%.

"The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said and added, “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully."

Meanwhile, the CAD remains on the backfoot as trades expect the BoC to cut interest rates again by 50 basis points (bps) in the December meeting. For more interest rate cues, investors await the Canadian Consumer Price Index (CPI) data for October, which will be published on Tuesday. Statistics Canada is expected to show that month-on-month headline CPI rose by 0.3% after a 0.4% deflation in September. On year, the inflation data is expected to have grown by 1.9%, faster than the former reading of 1.6%.

• USD/CAD grapples to extend its winning streak for the seventh consecutive session on Monday.
• The US Dollar’s strength is bolstered by recent hawkish remarks from Federal Reserve Fed officials.
• The commodity-linked CAD may receive support from positive sentiment surrounding Oil prices amid escalated concerns over possible supply disruptions.

USD/CAD trades around 1.4090 during the Asian hours on Monday, holding its ground near the four-year high of 1.4105, which was reached on Friday. The upside of the loonie pair is attributed to a stronger US Dollar (USD), driven by recent hawkish remarks from Federal Reserve (Fed) officials.

Fed Chair Jerome Powell downplayed the likelihood of imminent rate cuts, highlighting the economy's resilience, robust labor market, and persistent inflationary pressures. Powell remarked, "The economy is not sending any signals that we need to be in a hurry to lower rates."

Moreover, on Friday, Federal Reserve Bank of Chicago President Austan Goolsbee emphasized the importance of the Fed adopting a cautious, gradual approach in moving toward the neutral rate. Meanwhile, Boston Fed President Susan Collins tempered expectations for continued rate cuts in the near term while maintaining market confidence in a potential rate reduction in December.

The USD/CAD pair may break its six-day winning streak as the commodity-linked Canadian Dollar (CAD) could strengthen, buoyed by positive sentiment surrounding Oil prices. This optimism is driven by heightened concerns over potential supply disruptions amid the escalating tensions between Russia and Ukraine.

However, the Canadian Dollar faces downward pressure due to expectations that the Bank of Canada (BoC) will accelerate interest rate cuts in response to cooling inflation and a struggling economy. Traders are likely to focus on Tuesday's Canadian CPI inflation report for fresh insights into the central bank's policy direction.

The Canadian Dollar (CAD) has edged marginally higher versus a generally softer USD on the session. If markets are recalibrating the USD’s post-election gains, the CAD’s relatively limited rise on the session makes sense—because it has held up marginally better than its peers following the US vote, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CAD steadies on the daily chart

“While commodities are a little firmer generally today, it has been a rough week for raw materials overall amid concerns about global growth and weak Chinese demand—as well as the stronger USD. The CAD’s principal headwind comes from spreads, however, with short-term cash and swaps spreads having widened significantly in the USD’s favour in the wake of US election.”

“The 2Y cash bond spread reached 117bps earlier this week (the widest since the late 1990s) before narrowing modestly. Short-term price action is reflecting a little softness in the USD since the start of trading in Asia and the USD’s persistent overbought status should keep markets on alert for a pullback in recent gains.”

“But there is nothing in price action to suggest a significant drop in the USD is likely. A short-term consolidation in the USD is possible but minor dips to the 1.3950/55 area are likely to prompt renewed buying. A weekly close above 1.4040 will support the outlook for more medium term gains in the USD towards the 2020 peak just under 1.47.”