USD/CAD recovers further to near 1.3260 as US Dollar rebounds

• USD/CAD rebounds to near 1.3260, following footprints of the US Dollar.
• The Fed may start reducing interest rates from March 2024.
• Lower oil prices due to trade resumption from the Red sea have impacted the Canadian Dollar.

The USD/CAD pair jumps to near 1.3260 in the early New York session after recovering from the crucial support of 1.3180. The Loonie asset discovered significant bids after a decent recovery in the US Dollar Index (DXY) and a sheer sell-off in the oil prices.

The S&P500 is expected to open on a flat note, portraying a quiet market mood. Trading activity is quite thin due to festive mood. The USD Index has recovered to near 101.40 while the broader bias is still bearish as investors hope that the Federal Reserve (Fed) will cut interest rates earlier-than-projected.

As per the CME Fedwatch tool, there is a 73% chance that the Fed will reduce interest rates by 25 basis points (bps) to 5.00-5.25%. The probability that the Fed will continue reducing borrowing rate in May too is 72%.

Apart from easing price pressures, loosening labour market conditions in the United States economy would compel Fed policymakers to endorse rate cuts. The US Department of Labour reported higher-than-projected Initial Jobless Claims (IJC) for the week ending December 22. Individuals claiming jobless benefits were 218K, higher than the consensus of 210K and the former reading of 206K.

On the Canadian Dollar front, lower oil prices due to resumption of commercial shipment activities from the Red Sea route have dampened demand for the Canadian Dollar. Investors should note that Canada is the leading exporter of oil to the United States and lower oil prices impact the Canadian Dollar.