USD/CAD extends upside above 1.4150 on bets for big BoC cut

• USD/CAD gains traction to near 1.4170 in Monday’s early European session. 
• The BoC expects to deliver another big rate cut at its December meeting on Wednesday. 
• US Nonfarm Payrolls came in stronger than expected, rising by 227K in November vs. 36K (revised from 12K) prior. 

The USD/CAD pair extends the rally to around 1.4170 during the early European session on Monday. The Canadian Dollar (CAD) weakens to near a four-and-a-half-year low as traders expect another outsized interest rate cut by the Bank of Canada (BoC) at its December meeting on Wednesday. 

The BoC is expected to deliver a 50 basis points (bps) reduction on Wednesday after the same move in October, bringing the benchmark rate to 3.25%. “The Bank of Canada’s policy outlook is weighing on the Canadian dollar, and from a technical point-of-view, there’s little to suggest the currency will not keep sliding in the near-term,” noted Shaun Osborne, Scotiabank’s chief foreign exchange strategist.

Furthermore, the threat of US tariffs following Donald Trump’s election might contribute to the CAD’s downside. US President-elect Donald Trump said that he would propose massive hikes in tariffs on goods coming from Mexico, Canada, and China starting on the first day of his administration. 

Data released by the Bureau of Labor Statistics revealed on Friday that there were 227K new jobs added to the US economy in November, above the 200K expected by the market consensus. Meanwhile, the Unemployment Rate increased to 4.2% in November from 4.1% in October. Nonetheless, the release didn't shift the view that the US labor market is cooling but not at a rapid pace that would alter the Fed's interest rate-cutting path. 

Investors will closely monitor the release of the US Consumer Price Index (CPI) and Producer Price Index (PPI) reports, which are due on Wednesday and Thursday, respectively. These readings could be the main determinant of the Fed’s interest rate decision in December.