20 Dec 2024

USD/CAD has risen to 1.4467, marking its highest point since March 2020. The US Dollar has gained strength as the Federal Reserve appears to be exercising caution concerning further rate reductions. Meanwhile, the commodity-sensitive Canadian Dollar faces challenges due to falling crude oil prices.

USD/CAD has reversed its recent downward trend and is moving upward towards 1.4467, a peak not observed since March 2020, which was noted in the previous trading session. During the Asian trading hours on Friday, the pair is positioned around 1.4410.

The US Dollar Index (DXY), which assesses the value of the US Dollar (USD) against six other prominent currencies, remains close to its 25-month high of 108.49, achieved on Thursday, following the release of significant economic data from the United States.

The Annualized Gross Domestic Product (GDP) of the US reported a growth rate of 3.1% for the third quarter, exceeding both market predictions and the prior figure of 2.8%. Furthermore, Initial Jobless Claims fell to 220,000 for the week ending December 13, a decrease from 242,000 in the previous week and below the anticipated market estimate of 230,000.

The US Dollar has reinforced the Federal Reserve's caution regarding potential further reductions in interest rates. Fed Chair Jerome Powell articulated that the central bank remains hesitant to implement additional cuts, as inflation is anticipated to persistently exceed the 2% target. The monetary policy statement from the Fed highlighted that economic activity continues to be strong, although it acknowledged a softening in labor market conditions.

The Canadian Dollar (CAD) is encountering challenges as expectations rise for additional rate cuts by the Bank of Canada (BoC) in 2025, although the period of significant and aggressive cuts may be behind us. Furthermore, falling crude oil prices are exerting pressure on the commodity-linked CAD, particularly since Canada is the largest oil exporter to the United States.

Market participants will be closely monitoring the Canadian Retail Sales data for October, which is set to be released on Friday. In the United States, the focus will shift to the Personal Consumption Expenditures (PCE) Inflation data and the Michigan Consumer Sentiment Index.