Anna 
The Canadian dollar (CAD) experienced a fluctuating performance on Wednesday, initially strengthening by 0.12% before subsequently declining in response to hawkish comments made by Federal Reserve (Fed) Governor Christopher Waller.
Waller’s remarks, expressing a less imminent likelihood of rate cuts by the US central bank, contributed to pushing the US dollar closer to a one-month high, thereby exerting downward pressure on the CAD. However, the Fed’s overall stance signals a less stringent monetary policy approach, anticipating a total of 75 basis points worth of rate cuts throughout 2024. Despite this, investors remain cautious regarding the trajectory of US interest rates, potentially limiting further gains for the US dollar.
Meanwhile, crude oil prices saw an uptick due to concerns surrounding tighter global supply, particularly stemming from reduced exports out of Russia. Additionally, ongoing tensions between Israel and Hamas have raised fears of potential disruptions in Middle Eastern supply, further bolstering oil prices. Given Canada’s reliance on commodity prices, these developments supported the CAD.
However, analysts at Capital Economics predict a weakening trend for the Canadian dollar against its US counterpart this year. Ruben Gargallo Abargues, assistant economist, anticipates that widening interest rate differentials with the US and deteriorating terms of trade for Canada will exert bullish pressure on the USD/CAD pair. Furthermore, lower crude oil prices and expected rate cuts by the Bank of Canada could contribute to a softening of the Canadian dollar’s strength.
During the Asian and early European trading sessions, the USD/CAD pair witnessed an upward trajectory. Key events for CAD traders today include the release of Canada’s monthly Gross Domestic Product (GDP) data, alongside the final US GDP reports. Additionally, Jobless Claims, Pending Home Sales, and the revised Michigan Consumer Sentiment Index are set to be released, potentially shaping the short-term trend for USD/CAD. However, market participants are eagerly awaiting Friday’s release of the US Personal Consumption Expenditures (PCE) Price Index, which is expected to have a significant impact on market sentiment.
