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USD/CAD gave up the previous session’s gains as concerns over supply disruptions grew amid geopolitical tensions, with the commodity-linked Canadian dollar (CAD) finding support from a rise in crude oil prices. The pair was trading around 1.3960 during the European session on Thursday.
West Texas Intermediate (WTI) crude oil prices have recouped recent losses recorded in the previous session, trading around $69.50 per barrel at press time. Oil prices found support after Ukraine fired a British Storm Shadow cruise missile at Russia on Wednesday, signaling a renewed deployment of Western weapons against Russian targets. The day before, Ukraine had used a U.S. ATACMS missile.
Meanwhile, the Canadian dollar may find support as expectations for a larger-than-usual rate cut by the Bank of Canada (BOC) in December fade. After Tuesday’s hotter-than-expected inflation data, markets are now pricing in a nearly 26% chance of a 50 basis point rate cut from the Bank of Canada in December, down from 37% before the CPI release.
The U.S. dollar (USD) remains stable amid cautious comments from Federal Reserve officials. Boston Fed Chair Susan Collins said on Wednesday that while more interest rate cuts are necessary, policymakers should be cautious and avoid moving too quickly or too slowly, Bloomberg reported. At the same time, Federal Reserve Governor Michelle Bowman emphasized that inflation has remained high over the past few months and emphasized the need for the Federal Reserve to be cautious in cutting interest rates.
Nearly 90% of economists (94 out of 106) expect the Fed to cut interest rates by 25 basis points in December, taking the federal funds rate to 4.25%-4.50%, according to a Reuters poll. Economists expect smaller rate cuts in 2025 as President-elect Trump’s policies risk rising inflation. The federal funds rate is expected to be 3.50%-3.75% by the end of 2025, 50 basis points higher than last month’s forecast.
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