In early Asian trading on Thursday, the USD/CAD currency pair weakened to approximately 1.3970. This movement comes as futures traders adjusted their forecasts regarding a potential Federal Reserve rate cut in December. The decline in crude oil prices has further impacted the Canadian Dollar (CAD), which typically correlates with commodity prices.
Market analysts are watching several important economic indicators that are set to be released later in the day, including the US weekly Initial Jobless Claims, the Philadelphia Federal Reserve Manufacturing Index, Existing Home Sales, and the Conference Board Leading Index. Additionally, remarks from Federal Reserve officials, including Hammack and Goolsbee, are expected to provide further insights into monetary policy direction.
Recent robust economic data in the United States, persistent inflation, and Donald Trump’s success in the recent presidential election have strengthened the US Dollar against the Loonie at this moment. There are prevailing concerns that Trump’s policies could potentially fuel inflation, thereby reducing the likelihood of rapid interest rate cuts by the Federal Reserve.
Moreover, comments from Fed officials suggest a cautious approach to any possible rate cuts. For instance, one official noted the ongoing elevated inflation levels that warrant careful consideration before reducing rates. This cautious outlook has contributed to shifting market expectations regarding a rate cut in December. Data show that traders now foresee a 54% chance of a quarter-point rate reduction, a notable decrease from the previous week’s estimate of 80%.
On the Canadian side, dropping crude oil prices are exerting downward pressure on the CAD. However, prospects that the Bank of Canada is less likely to implement an extensive rate cut next month may help in mitigating the CAD’s losses. Current market assessments indicate a 26% probability of a 50 basis point cut by the BoC, down from 37% following the latest consumer price index data release.
