The US Dollar is experiencing a rebound after a recent selloff. Meanwhile, the Canadian Dollar, also known as the Loonie, briefly rallied to a fresh 19-week high. This article discusses the factors contributing to the fluctuation in the exchange rate between the USD and CAD.
The USD/CAD pair is set for a fifth weekly decline in six straight weeks. After reaching a 19-week low on Friday, the pair rebounded slightly above 1.3260. Market participants are pricing in an accelerated pace of rate cuts from the Federal Reserve (Fed) in 2024, leading to this downward pressure on the USD. However, it is important to note that the Canadian Dollar is struggling to find reasons to gain strength.
Economic data from Canada indicates a slowdown in the country’s economy. In October, the monthly Gross Domestic Product (GDP) failed to show any growth, remaining flat at 0.0%. Moreover, September’s GDP print was revised down to flat from a meager 0.1%. This lack of growth in Canadian GDP has persisted since June, when it declined by 0.2%. The absence of positive economic indicators is hindering the Canadian Dollar’s ability to attract buyers.
In the United States, inflation is declining at a faster rate than initially predicted. The US Personal Consumption Expenditures (PCE) Price Index for the year through November printed at 3.2%, slightly below the market forecast of 3.3%. This decrease in inflation has led to market expectations of faster and more frequent rate hikes from the Federal Reserve in 2024. Market participants are now pricing in a higher number of rate cuts, around 160 basis points, compared to the Fed’s forecast of only 75 basis points by the end of next December.
The recent rebound of the USD/CAD pair has brought it back into neutral territory. Despite this recovery, the pair is still down for the week, opening eight-tenths of one percent lower than Monday’s bids. Additionally, it has lost 2.5% from the last swing high into 1.3620. Technical indicators suggest that the pair is currently oversold, making it difficult to predict near-term recoveries.
The US Dollar is rebounding from its recent decline, while the Canadian Dollar struggles to gain momentum due to the economic slowdown in Canada. With market expectations of more rate cuts from the Federal Reserve in 2024, the USD/CAD pair remains volatile. Traders and investors need to monitor economic indicators and inflation rates closely to make informed decisions regarding this currency pair.
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