USD/CAD price steadies near 1.4370 as Fed signals hawkish outlook
USD/CAD steadies near 1.4370 as crude oil dips and Fed maintains hawkish stance
The USD/CAD pair traded near 1.4370 early Thursday amid opposing forces from weakening crude oil prices and a strengthening US dollar. The Federal Open Market Committee (FOMC) December meeting minutes highlighted the Federal Reserve’s intention to slow the pace of rate cuts in 2025 due to inflation concerns and the potential impact of President-elect Donald Trump’s policy changes.
The minutes revealed that policymakers scaled back projected interest rate cuts from four to two amid economic uncertainty. This bolstered the U.S. dollar, reflected in the U.S. dollar Index (DXY) holding steady near 109.00. US Treasury yields also supported the greenback, with the 10-year yield reaching 4.66% and the 30-year nearing 4.90%.
USD/CAD price dynamics (Dec 2024 - Jan 2025) Source: TradingView.
Crude oil weakness pressures the Canadian dollar
Canada’s commodity-linked currency faced additional headwinds from declining crude oil prices, with West Texas Intermediate (WTI) crude dropping to $72.70 per barrel—marking a second consecutive day of losses. The U.S. Energy Information Administration's (EIA) latest report showed a 0.959 million-barrel decline in U.S. oil inventories, marking the seventh straight weekly drawdown but falling short of the previous week’s 1.178 million-barrel drop.
Political instability in Canada adds to CAD’s volatility
In Canada, Prime Minister Justin Trudeau’s resignation announcement after nine years in office heightened political uncertainty. The announcement comes amid tariff threats and plummeting approval ratings, fueling speculation about early elections. Political instability, paired with lower oil prices, has compounded pressure on the Canadian dollar, making the USD/CAD pair vulnerable to further gains.
Traders are closely monitoring the next batch of U.S. economic data and political developments in Canada. A sustained break above 1.4370 could pave the way for further USD/CAD gains, while any improvement in oil prices or political clarity in Canada could trigger a reversal.
In our previous analysis, we discussed how Trudeau's resignation and crude oil gains supported the Canadian dollar. Today’s developments highlight how falling oil prices and global uncertainties have shifted the sentiment, impacting the USD/CAD trajectory.
