The USD/CAD pair displays reluctance to capitalize on recent gains following the Bank of Canada’s (BoC) interest rate decision on Wednesday. Despite positive S&P Global Purchasing Managers Index (PMI) data from the United States potentially reducing the likelihood of Federal Reserve (Fed) rate cuts in March, the pair hovers around 1.3520 during the Asian session on Thursday.
The BoC, in its fourth consecutive decision, maintained the benchmark interest rate at 5.0%. BoC Governor Tiff Macklem signaled a shift in focus, transitioning from questioning whether interest rates are sufficiently high to discussing potential future reductions. The Monetary Policy Report (MPR) from the Bank of Canada indicates an expectation of reaching the 2.0% inflation target by 2025.
Support for the Canadian Dollar comes from improved crude oil prices, contributing to the USD/CAD pair’s hesitancy. West Texas Intermediate (WTI) oil prices hover around $75.50 per barrel, driven by speculations surrounding the People’s Bank of China’s reduction in the Medium-term Lending Facility (MLF) rate and a simultaneous decline in US crude oil stockpiles.
Market attention turns to the preliminary US Gross Domestic Product Annualized report on Thursday, with anticipated figures indicating a decrease to 2.0% in the fourth quarter from the previous 4.9%. If actual GDP aligns with these expectations, the probability of a March rate cut by the Federal Reserve might increase.
However, the CME’s FedWatch tool reveals a decrease in market bets on a March rate cut, dropping below 40%. This marks a significant decline from the approximately 80% probability recorded just a month ago, reflecting shifting market sentiment regarding the Fed’s future monetary policy decisions.