The USD/CAD currency pair has risen to approximately 1.4405 during the early Asian trading session on Friday, powered by a stronger US dollar. This upward movement is supported by recent developments, including the Federal Reserve’s decision to implement a cautious rate cut, and reflects a prevailing market sentiment regarding future monetary policy direction in both Canada and the United States.
The Federal Reserve lowered the federal funds rate by 25 basis points, adjusting the target range to between 4.25% and 4.50%. Accompanying this decision was the latest Summary of Economic Projections, indicating that the Fed plans to reduce the number of anticipated interest rate cuts next year from four to just two, which has taken many market participants by surprise. This shift toward a more cautious approach to monetary easing has strengthened the US dollar against other currencies, including the Canadian dollar.
In contrast, Canadian economic data showed a decline in the Consumer Price Index (CPI) inflation for November, which has raised expectations that the Bank of Canada (BoC) may be prompted to make additional rate cuts in the near future. While the headline CPI decreased to 1.9% year-on-year, core inflation measures indicated a degree of resilience. This mixed inflation report has led analysts to predict that the BoC will likely implement a 25 basis point rate cut in January, marking a transition to a more gradual approach to monetary policy adjustments throughout 2025.
As traders await key economic indicators, including Canadian retail sales for October and US Core Personal Consumption Expenditures price index data, the dynamics between the US dollar and the Canadian dollar could continue to shift. The interplay of these factors will be critical in determining the trajectory of the USD/CAD pair in the upcoming sessions.
