USD/CAD price consolidates below fresh 4-year high amid economic divergence
USD/CAD surges to 4-year high at 1.4465, supported by Fed outlook and Canada’s growth concerns
The USD/CAD currency pair has surged by over 7% in the fourth quarter of 2024, reaching its highest level in four years, with a fresh peak of 1.4465 on December 19.
Since then, the pair has consolidated above the 1.4340 level, holding steady despite mixed economic signals from both the US and Canada.
USD/CAD price dynamics (December 2024). Source: TradingView.
The US economic landscape has shown signs of slowing, but inflation remains a concern. Soft US Personal Consumption Expenditures (PCE) data somewhat tempered inflation worries, though the Federal Reserve’s recent comments pointed to fewer rate cuts next year. This has contributed to a supportive environment for the USD, boosting its appeal against the Canadian dollar. Additionally, weaker-than-expected US Durable Goods Orders for November, which fell 1.1% compared to the forecasted 0.4% drop, have added some uncertainty to the outlook, but they are unlikely to alter the Fed’s decision.
In contrast, Canada’s economic picture has shown some resilience, with October GDP rising by 0.3% month-over-month, far exceeding expectations of a 0.1% decline. However, the sharp drop in the Raw Material Price Index by 0.5% in November points to some underlying weakness in the economy, which may dampen growth expectations moving into the new year. Canada’s GDP is projected to have contracted by 0.1% in November, marking its first monthly contraction of 2024, which aligns with the central bank’s restrained growth outlook.
USD/CAD price prediction: Technical indicators set the stage for further upside
Technically, USD/CAD has maintained a solid bullish trend, reaching the 4-year high of 1.4465 in mid-December. Despite this, the pair has remained in consolidation above the 1.4340 level, with the 100 EMA providing support on December 23. On December 24, USD/CAD rose again, trading at 1.4400 in the European session. The Relative Strength Index (RSI) is also climbing, though it has yet to reach overbought territory, suggesting there could still be room for further gains.
While the Fed’s stance on rate cuts and ongoing inflationary pressures are likely to continue supporting the US dollar, concerns over the slowing pace of economic growth in the US could limit further upside. Meanwhile, Canada’s economic challenges may weigh on the loonie, but any upside potential for USD/CAD could be limited if the Canadian economy shows signs of resilience in the face of weaker raw material prices.
The Canadian dollar (CAD) strengthened, supported by rising crude oil prices as U.S. data pointed to cooling inflation. USD/CAD traded lower, hovering near 1.4360 during Monday's Asian trading hours.
