USD/CAD price edges lower below multi-year high amid mixed market signals
USD/CAD trades below multi-year high amid soft dollar and cautious sentiment.
The USD/CAD pair experienced a modest pullback during Monday’s Asian trading session after touching its highest level since March 2020. The pair currently trades near the mid-1.4400s, down approximately 0.10% for the day.
A slight downtick in the U.S. dollar, driven by softening inflation expectations and risk-on sentiment in equity markets, has contributed to the retreat. However, the decline lacks strong bearish conviction as traders await clarity from US President-elect Donald Trump’s inaugural address.
USD/CAD price dynamics (Dec 2024 - Jan 2025) Source: TradingView.
Oil prices and Fed policy expectations impact USD/CAD
Crude oil prices, typically influential for the commodity-linked Canadian dollar, remain below multi-week highs. This has limited support for the Loonie, as easing geopolitical tensions in the Middle East and speculation about potential US-Russia agreements have tempered supply concerns. At the same time, the US dollar has struggled to build on Friday's gains due to expectations that the Federal Reserve may cut interest rates twice this year, as signs of easing US inflation emerge.
Despite the softer U.S. dollar, investors anticipate that Trump’s potential protectionist policies could reignite inflationary pressures, prompting the Federal Reserve to adopt a more hawkish stance. This possibility has added an element of caution to USD bears, restricting USD/CAD’s downward trajectory.
Traders remain cautious ahead of Trump address
Market participants are exercising restraint as they await President-elect Trump’s inaugural address, which is expected to provide insights into his policy direction, including trade and foreign relations. The mixed sentiment around US monetary policy and crude oil dynamics underscores the need for follow-through selling before positioning for further USD/CAD declines.
In conclusion, while USD/CAD remains under mild pressure below its multi-year high, mixed market dynamics and impending policy announcements suggest that traders should monitor key developments closely. A decisive break below current levels or further oil price movements could shape the pair’s direction in the near term.
Our earlier analysis emphasized the role of robust Canadian employment data and the Bank of Canada’s cautious stance in influencing USD/CAD movements. These elements, along with Trump’s upcoming trade policies, remain central to the pair's outlook.
