Ella 
USD/CAD faced selling pressure for a second day in Asia on Friday and fell to a more than two-month low. USD/CAD is currently trading around the 1.3540-1.3535 range and appears vulnerable to extending the downtrend established over the past three-plus weeks.
The U.S. dollar is encountering new supply and now appears to have halted its two-day rally from Wednesday’s lowest levels since August 11, thus weighing on USD/CAD. Investors appear to believe that the Federal Reserve will not raise interest rates again and may begin easing monetary policy as early as March 2024. That view was reaffirmed by U.S. macro data released on Thursday, which showed inflation continued to slow in October and that the labor market was also slowing. At the same time, the dovish outlook triggered a new round of declines in U.S. bond yields and weighed on the dollar.
In addition, the maintenance of a potentially bullish tone in global stock markets has further suppressed the relative safe-haven status of the US dollar. Meanwhile, dollar bulls shrugged off hawkish comments from Federal Reserve officials overnight. Indeed, New York Fed President John Williams and San Francisco Fed President Mary Daly pushed back on expectations for a quick shift to rate cuts and left the door open to further tightening if inflation progress stalls. This suggests the direction of least resistance to a rate cut is to the downside and supports the prospect of further USD/CAD depreciation.
Still, crude prices remained on the defensive, below the 2-1/2-week high hit on Thursday, on concerns about deteriorating Chinese demand and the voluntary nature of new production cuts announced by OPEC+. There are some differences among OPEC+ members over production cuts, and the announcement also disappointed traders hoping for further supply cuts. Separately, data showed on Thursday that Canada’s economy unexpectedly shrank in the third quarter, with third-quarter gross domestic product at an annualized rate of 1.1%. This could therefore weigh on the commodity-linked Canadian dollar and provide support for USD/CAD.
Traders are also likely to hold back on aggressive bets ahead of Friday’s release of Canadian monthly employment data and the U.S. ISM manufacturing PMI. However, the focus will still be on Fed Chairman Powell’s speech later in the US session, which will have a key impact on US dollar volatility and provide some clear boost to the USD/CAD pair. That said, USD/CAD is still headed for its third consecutive weekly decline and fourth out of the previous five weeks.
