USD/CAD trades close fresh four-year high near 1.4250 amid firm US Dollar

• 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.