USD/CAD price extends losses as oil prices rise and Fed rate cuts expected
USD/CAD weakens as oil prices rise and Fed signals policy easing
USD/CAD is trading lower for the third consecutive session, hovering near 1.4360 during Monday's Asian trading hours. The Canadian dollar (CAD) has strengthened, and it has been supported by rising crude oil prices since U.S. data pointed to cooling inflation.
Expectations for policy easing by the Federal Reserve have further bolstered the CAD, pressuring the USD/CAD exchange rate. As Canada remains the largest oil exporter to the U.S., higher oil prices typically boost the Canadian dollar.
USD/CAD price movement (Nov 2024 - Dec 2024) Source: TradingView
Oil prices and U.S. economic data drive market moves
Crude oil prices gained after the release of the U.S. Personal Consumption Expenditures (PCE) Price Index on Friday. Core PCE inflation, a key metric for the Federal Reserve, rose 2.8% year-over-year in November, slightly below the forecasted 2.9%. On a monthly basis, inflation increased by just 0.1%, falling short of estimates of 0.2% and the prior month’s 0.3%. The weaker inflation data strengthened market expectations for further rate cuts by the Fed in 2025, which could support global economic growth and increase oil demand.
In Canada, Prime Minister Justin Trudeau has announced that he will not step down during the holiday season despite mounting political pressure. Trudeau’s minority government faces the possibility of no-confidence motions from opposition parties when Parliament reconvenes in six weeks. In the United States, President-elect Donald Trump has revealed key appointments to his administration, including Scott Bessent as Treasury Secretary and Howard Lutnick as Commerce Secretary, which could influence economic policy and investor sentiment.
With the Canadian Dollar benefiting from higher oil prices and dovish signals from the Federal Reserve, USD/CAD is likely to face further downward pressure. A continued decline could bring the pair closer to the 1.4300 level, while any shifts in U.S. economic sentiment may provide short-term support for the USD.
In earlier coverage, we analyzed the USD/CAD price holding steady above 1.4400, bolstered by the Fed's hawkish stance and dovish signals from the Bank of Canada.
