The exchange rate between the US Dollar and the Canadian Dollar has seen a notable rise, with the USD/CAD pair reaching a new multi-year high of 1.4239 during Asian trading on Friday, marking the strongest position since April 2020. This increase is largely influenced by the US government’s threats of tariffs, which have strengthened the US Dollar while exerting pressure on risk-sensitive currencies, including the Canadian Dollar.
The Canadian Dollar, which is closely tied to commodity prices, especially crude oil, has faced additional headwinds due to recent declines in oil prices. As the largest crude oil supplier to the United States, Canada feels the impact when prices fluctuate. Currently, West Texas Intermediate (WTI) crude is trading around $69.70 per barrel for the second consecutive session, reflecting a weakening market.
Despite the challenges, the Canadian Dollar may find support from the Bank of Canada’s recent stance on interest rates. The central bank has indicated a more tempered approach to future rate cuts, suggesting a cautious but steady economic outlook. This communication may help to stabilize the Loonie, countering some of the downward pressure it faces from external factors.
In the United States, stronger-than-anticipated economic data has bolstered the US Dollar further. The Producer Price Index (PPI) rose by 0.4% month-over-month in November, marking the largest increase since June and surpassing the expected growth of 0.2%. This robust economic indicator has added to the positive sentiment around the USD.
Looking ahead, market participants are focusing on the upcoming interest rate decision from the US Federal Reserve, scheduled for next week. Current market expectations are leaning towards a 25 basis point rate cut, a move that will be keenly watched as it could significantly influence currency valuations and overall market dynamics.
