USD/CAD price slips below $1.42 as weak U.S. data fuels Fed rate cut speculation
USD/CAD chart showing price decline below 1.4200 amid weak U.S. data
The USD/CAD pair declined below 1.4200 on Monday as the U.S. dollar weakened, weighed down by soft economic data that reinforced expectations for a Federal Reserve rate cut. The latest jobless claims and S&P Global PMI data revealed slowing economic momentum in the U.S., prompting investors to price in potential monetary easing.
The U.S. Dollar Index (DXY) dropped to around 106.00, while U.S. Treasury yields on two-year and ten-year bonds fell to 4.19% and 4.43%, respectively.
USD/CAD price dynamics (January 2025 - February 2025) Source: TradingView.
Canadian economy faces mixed signals
Despite broad U.S. dollar weakness, the Canadian dollar’s recovery remains uncertain due to Canada’s economic slowdown. January retail sales fell by 0.4%, the first decline in seven months, signaling weakened consumer spending.
At the same time, inflationary pressures persist, with the Industrial Producer Price Index rising 1.6% and the Raw Materials Price Index up 3.7% month-over-month, complicating the Bank of Canada’s policy stance. These figures suggest the BoC may hold off on rate cuts to control inflation, even as economic momentum slows.
Oil prices add further pressure on CAD
The Canadian dollar also faced headwinds from weaker crude oil prices, which declined amid expectations of resumed oil exports from Iraq’s Kurdistan region. Iraq’s oil ministry confirmed plans to export 185,000 barrels per day via the Iraq-Turkey pipeline, adding supply to the global market.
With Canada being the largest oil exporter to the U.S., declining oil prices could weigh on the loonie in the near term.
Outlook: USD/CAD at a pivotal point
The USD/CAD pair remains in a critical zone, with further downside likely if U.S. economic data continues to deteriorate and Fed rate cut expectations strengthen. However, the Canadian dollar’s gains may be limited due to economic uncertainty and oil market volatility. Traders will closely watch the Federal Reserve’s policy outlook, along with upcoming Canadian economic indicators, to determine the next move for the pair.
As previously discussed USD/CAD price remains under pressure, with economic data and oil prices shaping near-term direction.
