The USD/CAD currency pair gained momentum, approaching the 1.4405 mark during the early Asian session on Friday, supported by a stronger US Dollar. Market participants are focusing on upcoming economic data, including Canada’s October Retail Sales and the US Core Personal Consumption Expenditures (PCE) Price Index, both of which are due for release later in the day.
The US Federal Reserve recently reduced the federal funds rate by 25 basis points, bringing the target range to 4.25%–4.50%. The central bank’s latest Summary of Economic Projections (SEP) revealed a more hawkish outlook than anticipated, indicating plans to cut interest rates only twice next year, as opposed to the previously expected four reductions. This shift in policy expectations has fueled a broader rally for the US Dollar.
In contrast, Canada’s inflation data showed a slowdown in the Consumer Price Index (CPI) for November, prompting speculation that the Bank of Canada (BoC) may ease rates further in 2025. While the Bank is unlikely to pursue aggressive rate cuts, this expectation could put downward pressure on the Canadian Dollar, further supporting the USD/CAD pair.
Rachel Siu, head of Canadian fixed income strategy at BlackRock, commented on the mixed inflation report, noting that although the headline CPI eased to 1.9% year-over-year, core inflation measures remained stubborn. Siu expects the BoC to reduce rates by 25 basis points in January, followed by a more gradual approach to monetary easing in 2025.
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