06 Jan 2025

1. The USD/CAD pair has weakened in response to reports indicating that Canadian Prime Minister Justin Trudeau is expected to resign on Monday. Meanwhile, the price of WTI Oil remains close to its highest point since October, propelled by anticipated growth in global fuel demand. The US Dollar Index maintains its level near 109.00, approaching recent peaks.

USD/CAD has ended its four-day upward trend, currently trading near 1.4400 during the Asian session on Monday. This decline in the pair can be linked to the strengthening of the Canadian Dollar (CAD), following news that Canadian Prime Minister Justin Trudeau is anticipated to announce his resignation today. Furthermore, rising Oil prices are bolstering the commodity-sensitive CAD, as Canada remains the largest crude oil supplier to the United States.

In political developments, Prime Minister Trudeau is expected to reveal his resignation prior to a national caucus meeting scheduled for Wednesday. According to three sources cited by The Globe and Mail, Trudeau may announce his decision as early as Monday, indicating his intention to step down as the leader of the Liberal Party.

West Texas Intermediate (WTI) Oil is trading at approximately $73.50 per barrel, approaching its highest price since October 2024. Investors are keenly observing the potential effects of colder weather in the Northern Hemisphere and economic stimulus initiatives from Beijing on global fuel demand.

The potential decline of the USD/CAD currency pair may be constrained as the US Dollar (USD) strengthens in response to the Federal Reserve's (Fed) shift towards a more hawkish stance. The US Dollar Index (DXY), which evaluates the performance of the US Dollar against six prominent currencies, remains stable near the 109.00 mark, approaching recent peaks.

Following three successive rate reductions, the Fed is anticipated to pause its easing measures during the January meeting. The most recent dot plot from the Fed’s Summary of Economic Projections suggests that policymakers expect the Federal Funds Rate to reach 3.9% by year-end, reflecting an outlook of only two rate cuts in 2025.

Furthermore, Fed officials have indicated a more prudent strategy regarding rate cuts in 2025. On Friday, Richmond Fed President Thomas Barkin emphasized that the benchmark policy rate should stay restrictive until there is increased assurance that inflation is on course to meet the 2% target.

In addition, Fed Governor Adriana Kugler and San Francisco Fed President Mary Daly highlighted the difficult balancing act confronting US central bankers as they strive to moderate the pace of monetary easing this year.