- USD/CAD remains positioned below the multi-year peak of 1.4245 recorded on Friday.
- The CME FedWatch tool indicates that a quarter-point rate cut by the Fed on Wednesday is fully priced in.
- The Canadian Dollar struggled as the Bank of Canada implemented an aggressive monetary policy easing.
USD/CAD edged lower after hitting a multi-year high of 1.4245 on Friday, trading near 1.4230 during Monday’s Asian session. This upward momentum can be attributed to a weaker US Dollar (USD) amid soft US Treasury yields ahead of the Federal Reserve’s (Fed) upcoming interest rate decision, with expectations rising for a 25 basis point rate cut at its final monetary policy meeting of 2024.
Market analysts anticipate that the Fed will lower rates while signaling a potential pause, considering the strength of the US economy and inflation remaining above the 2% target. The CME FedWatch tool indicates that markets are nearly fully pricing in a quarter-point rate cut at the December Fed meeting.
The Canadian Dollar (CAD) has faced headwinds as the Bank of Canada (BoC) implemented aggressive monetary easing. Last week, the BoC reduced its benchmark rate by 50 basis points to 3.25%, as forecasted, but signaled a more cautious approach moving forward, given the significant reduction in policy rates. BoC Governor Tiff Macklem cautioned that tariffs on Canadian exports imposed by US President-elect Donald Trump could have a notable impact on the economy.
The CAD, linked to commodities, may find support from rising crude oil prices, driven by the likelihood of tighter supplies due to additional US sanctions on major producers like Russia and Iran. West Texas Intermediate (WTI) crude is trading around $70.50 per barrel at the time of writing.
On Friday, US Treasury Secretary Janet Yellen mentioned that the US is considering further sanctions on “dark fleet” tankers and may also target Chinese banks in an effort to limit Russia’s oil revenues and access to foreign supplies, which are fueling its war in Ukraine, according to Reuters.
