The USD/CAD currency pair is extending its positive trend for the second consecutive day, driven by a strengthening US Dollar. The Canadian Dollar weakens due to falling oil prices and expectations of further rate cuts by the Bank of Canada. Market analysts caution against aggressive directional bets, citing recent range-bound price action and the lack of significant economic data releases.
The USD/CAD currency pair is displaying a positive bias for the second consecutive day, fueled by a resurgence in demand for the US Dollar. Contributing to the Loonie's weakness are the recent decline in oil prices and market expectations for further rate cuts by the Bank of Canada (BoC). While the pair saw some buying interest following a sharp pullback from its highest level since March 2020, it has struggled to surpass the mid-1.4300s.
The US Dollar benefits from a modest rebound in US Treasury bond yields, moving away from a two-week low tested on Tuesday. In contrast, the Canadian Dollar faces downward pressure from anticipation of continued rate reductions by the BoC in 2025, supported by Canada's annual inflation rate dropping to 1.8% in December. Adding to the Loonie's woes is the recent slump in crude oil prices, which weakens the commodity-linked currency.Adding a layer of complexity are recent geopolitical tensions. US President Donald Trump threatened to impose 25% tariffs on Canada and Mexico as early as February. However, the lack of concrete plans eased market concerns about the potential impact on the Canadian economy, limiting losses for the CAD. Furthermore, market bets on two Federal Reserve (Fed) interest rate cuts this year, coupled with a generally positive risk appetite, keep a lid on the safe-haven US Dollar and may discourage traders from taking overly bullish positions on the USD/CAD pair. The recent sideways price action observed over the past month also warrants caution before making strong near-term directional bets.Looking ahead, Wednesday's economic calendar is devoid of any major market-moving data releases from both the US and Canada, leaving USD price movements as the primary driver of the USD/CAD pair. Oil price developments are likely to provide significant impetus to the pair ahead of crucial BoC and Fed policy decisions next week. US Dollar Strength Today: The US Dollar (USD) exhibited its strongest performance against the New Zealand Dollar (NZD). The heat map below visualizes percentage changes in major currencies against each other. The base currency is selected from the left column, while the quote currency is chosen from the top row. For instance, selecting the US Dollar from the left column and moving horizontally to the Japanese Yen would display the percentage change representing USD (base)/JPY (quote).
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