USD/CAD price retreats as Canadian dollar strengthens with crude oil recovery
USD/CAD weakens as crude oil recovery boosts CAD
The USD/CAD pair breaks its three-day winning streak, trading near 1.4400 during thin volumes ahead of the New Year holiday. The US Dollar (USD) remains subdued despite support from the Federal Reserve’s (Fed) hawkish stance.
The Canadian Dollar (CAD) gains ground, buoyed by a recovery in crude oil prices. West Texas Intermediate (WTI) crude oil trades near $70.20 per barrel, marking its second consecutive day of gains. As Canada is the largest crude oil exporter to the US, rising oil prices bolster the CAD. However, concerns linger over 2025's oversupplied oil market and uncertainties surrounding China’s future oil demand, limiting the upward momentum in crude prices.
USD/CAD price dynamics (Oct 2024 - Dec 2024) Source: TradingView.
Fed’s cautious policy outlook influences market sentiment
The Federal Reserve’s recent quarter-point rate cut has fueled expectations of a cautious monetary policy in 2025. Fed Chair Jerome Powell emphasized the central bank's conservative approach to future cuts, reinforced by projections of only two rate reductions next year. Rising inflation concerns, stemming from potential policy changes by the incoming Trump administration, including tax cuts and deregulation, could further bolster the USD.
Despite these factors, the USD faces headwinds from improved market sentiment for the commodity-linked CAD, driven by oil recovery. Thin trading volumes ahead of the holiday season also weigh on the pair, leaving traders in a wait-and-see mode for further developments.
The USD/CAD pair’s trajectory will hinge on crude oil price movements, Fed policy updates, and potential fiscal changes under President-elect Donald Trump. Market participants should monitor OPEC+ decisions, China's demand outlook, and inflationary trends in the US for cues on future forex dynamics.
In our previous analysis, we highlighted USD/CAD reaching a four-year high of 1.4465 in December 2024, supported by Fed hawkishness and weaker Canadian growth prospects.
