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USD/CAD extended the previous day’s late pullback from around the 1.4100 mark and continued lower during the first half of Tuesday’s European session. The intraday slide was driven by a combination of factors and has dragged spot prices closer to the psychological 1.4000 mark over the past hour.
Despite a ceasefire agreement between Israel and the Lebanon-based Hezbollah militant group, the geopolitical risk premium is still at play amid the worsening conflict between Russia and Ukraine. In addition, expectations that the Organization of the Petroleum Exporting Countries (OPEC+) and its allies will further delay plans to increase production provided support for crude oil prices for the second consecutive day. This, coupled with reduced bets that the Bank of Canada (BOC) will cut interest rates sharply in December, supported the commodity currency CAD and put downward pressure on USD/CAD amid a modest decline in the US dollar.
The U.S. Dollar Index (DXY), which tracks the greenback against a basket of currencies, failed to build on its overnight rebound from nearly three-week lows as the likelihood of a December interest rate cut by the Federal Reserve increased. However, investors appear to believe that U.S. President-elect Donald Trump’s expansionary policies will reignite inflationary pressures and force the Federal Reserve to keep interest rates higher for longer. This, in turn, would modestly lift U.S. bond yields, providing support for the dollar. Beyond that, concerns over Trump’s tariff plans should limit Canadian dollar (CAD) and USD/CAD volatility.
For now, traders are looking to the release of U.S. JOLTS job openings later in the North American session for short-term opportunities. Beyond that, important U.S. macro data this week, including the closely watched non-farm payrolls (NFP) report and speech by Federal Reserve Chairman Jerome Powell, should provide some insight into the outlook for U.S. interest rates. clues. This, in turn, will play a key role in driving demand for the U.S. dollar and provide some meaningful momentum to the USD/CAD pair. Investors will also be keeping a close eye on Thursday’s key OPEC+ meeting, which should influence oil price dynamics in the near term.
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