The exchange rate of USD/CAD remains below the significant high of 1.4245 recorded last Friday, currently fluctuating around 1.4230 during the Asian trading session on Monday. This recent movement can be linked to the softer performance of the US Dollar, which is facing pressure from muted US Treasury yields as the market anticipates the Federal Reserve’s forthcoming interest rate decision. Expectations are building for a 25 basis point rate cut during the Fed’s last monetary policy meeting of 2024.
Analysts suggest that the Federal Reserve is poised to implement a rate cut while balancing the need for a pause, particularly in light of a resilient US economy coupled with inflation rates that remain persistently above 2%. Additionally, market sentiment reflects a strong belief in a quarter-point reduction in rates as the Fed approaches its December session.
Meanwhile, the Canadian Dollar has experienced headwinds, attributed to the recent easing of monetary policy by the Bank of Canada. Last week, the BoC reduced its benchmark borrowing rate by 50 basis points to 3.25%, aligning with market expectations. However, the central bank indicated a more cautious easing trajectory moving forward, as current policy rates have already seen considerable reductions. Concerns have also been raised by the BoC regarding the potential economic impact of impending tariffs on Canadian exports.
On a positive note, the Canadian Dollar, which is closely tied to commodity prices, may find support from the recent upswing in crude oil prices, spurred by expectations of tighter supplies. The price of West Texas Intermediate (WTI) oil is hovering around $70.50 per barrel, bolstered by increased tensions and sanctions affecting major producers such as Russia and Iran.
In related developments, US Treasury Secretary has indicated that the US government might consider imposing additional sanctions targeting tanker operations and potentially Chinese banks, as part of measures to restrict Russia’s oil revenue, further intertwining economic conditions in North America with global geopolitical dynamics.
