The USD/CAD pair is facing challenges in gaining momentum during the Asian session on Friday, trading around 1.3555, close to a nearly two-week low reached the previous day.
The US Dollar (USD) continues to experience selling pressure for a second consecutive day, lingering near its lowest level since July 2023, following the Federal Reserve’s substantial interest rate cut on Wednesday. Fed officials have projected an additional 50 basis point reduction in borrowing costs by year-end, contributing to a risk-on sentiment that undermines the safe-haven USD and weighs on the USD/CAD pair.
In contrast, crude oil prices are consolidating after recently reaching over a two-week high, on track to post gains for the second week in a row due to concerns about declining global stockpiles. Escalating tensions in the Middle East are also providing support for oil prices, which in turn benefits the commodity-linked Canadian Dollar (CAD) and helps to cap any potential upside for USD/CAD. However, dovish expectations regarding the Bank of Canada (BoC) limit the downside for the pair.
Market participants are beginning to price in the possibility of a 50 basis point rate cut from the BoC next month, spurred by recent data showing Canada’s CPI had its smallest increase since February 2021, with core measures hitting a 40-month low. This uncertainty is preventing aggressive bullish bets on the CAD ahead of the Canadian Retail Sales data set for release later today.
Traders are also keenly awaiting BoC Governor Tiff Macklem’s speech during the early North American session, as well as remarks from Philadelphia Fed President Patrick Harker. These developments, along with fluctuations in oil prices, are expected to influence CAD dynamics. Despite these factors, the USD/CAD pair appears poised to register losses for the first week in three.
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