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USD/CAD remains flat after two consecutive days of gains, trading around 1.4410 during the Asian session on Friday. USD/CAD edged lower as the Canadian dollar (CAD) strengthened on higher crude oil prices, as Canada is the largest oil exporter to the United States.
West Texas Intermediate (WTI) crude oil prices rose, trading at $69.50 a barrel at press time. Crude oil prices were boosted by reports showing major European energy companies were focusing on oil and gas rather than renewable energy for short-term profits, a trend expected to continue into 2025.
Canada’s GDP likely shrank 0.1% month-on-month in November, its first monthly decline this year, reflecting the central bank’s recent warnings and lowered growth forecasts. The government also lowered its GDP forecast, lowering the 2025 growth rate from 1.9% to 1.7% and the 2026 growth rate from 2.2% to 2.1%. Rising market expectations that the Bank of Canada (BoC) may further ease interest rates to support growth may widen the interest rate gap with the United States and reduce the attractiveness of the Canadian dollar.
The downside for USD/CAD may be limited as the U.S. dollar (USD) strengthens on rising expectations for fewer interest rate cuts from the Federal Reserve (Fed). At its December meeting, the Fed cut interest rates by a quarter and revised its forecast for 2025 to two rate cuts from four previous cuts.
The U.S. Dollar Index (DXY), which measures the value of the U.S. dollar (USD) against six major currencies, is trading above 108.00, just below its highest level since November 2022. However, the dollar’s upside may be limited as 2-year and 10-year Treasury yields remain low at 4.32% and 4.57% respectively.
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