USDCAD in a Tug-of-War
London: 25 January 2024 (TraderMade): USDCAD finds itself in a holding pattern, caught between opposing forces that tug at its price near 1.3520. On one hand, the US Dollar enjoys upward momentum.
USDCAD's path remains uncertain, caught between conflicting signals from central banks, economic data, and commodity prices.
The USDCAD pair slipped slightly by 0.07% to 1.35142 at about 09:29 AM GMT.
USDCAD Trajectory Over The Last Week
The following table shows how the USDCAD pair has fluctuated between 1.34 and 1.35 during the last week:
| Date | Exchange Rates |
|---|---|
| 19 January High | 1.35024 |
| 22 January Low | 1.3415 |
| 23 January High | 1.3492 |
| 24 January Low | 1.343 |
| Live | 1.35091 (at about 09:44 AM GMT) |
Elements Supporting The Canadian Dollar (CAD)
Bank of Canada's cautious stance
The BoC held rates steady at 5.0%, but Governor Macklem's hints about future easing in response to declining inflation keep a lid on USDCAD gains. The MPR suggesting inflation reaching its 2.0% target by 2025 underscores the central bank's gradual approach.
Resurgent oil prices
Crude oil, particularly WTI, climbs modestly around $75.50 per barrel, buoyed by the People's Bank of China's recent MLF rate cut and a reduction in US stockpiles. This fuels optimism for the Canadian economy, which relies on oil exports.
Potential US GDP slowdown
Market expectations point to a 2.0% annualized GDP reading for the US in Q4, down from the previous 4.9%. This could revive bets for Fed easing later in the year, putting downward pressure on the USD.
The interplay of these factors creates a delicate dance for USDCAD. While the US Dollar finds strength in robust data and hawkish rhetoric, the Canadian Dollar receives support from oil price gains and hints of future BoC easing.
The upcoming US GDP release could act as a crucial catalyst, with a weaker-than-expected reading potentially boosting CAD's appeal as markets price in a higher probability of future Fed rate cuts.
Reasons Behind US Dollar Dominance
Strong PMI data
Positive S&P Global PMI figures from the US suggest resilience in the American economy, potentially diminishing bets for immediate rate cuts by the Federal Reserve in March. This strengthens the greenback in anticipation of continued monetary tightening.
Market sentiment shift
Diminished expectations for a Fed rate cut in March are reflected in CME's FedWatch tool, where bets have dropped from 80% a month ago to below 40%. This shift in sentiment bolsters the US Dollar.
USDCAD's path remains uncertain, caught between conflicting signals from central banks, economic data, and commodity prices. The battle lines are drawn, and the direction of this currency pair hinges on which force ultimately exerts higher influence.
