During the early Asian session on Thursday, the USD/CAD pair traded on a softer note, edging lower to 1.3351. This decline can be attributed to the ongoing sell-off in the US Dollar (USD). The pair had previously reached four-month lows of 1.3310 and has rebounded slightly to 1.3350.
Limited Upside for the US Dollar
The anticipated three rate cuts from the Federal Reserve (Fed) have limited the upside potential of the US Dollar (USD). The Fed’s hawkish remarks last week, along with the signal that the central bank will cut interest rates by a total of 75 basis points (bps), have exerted selling pressure on the USD. Although Fed Chair Jerome Powell did not provide a specific timeline for the rate cuts, the market expects a cut as early as March.
Investors are eagerly waiting for two key events that could trigger volatility in the USD/CAD pair. The first event is the release of Canadian Retail Sales data, which is expected to show an increase of 0.8% month-on-month (MoM) in October, compared to 0.6% in the previous reading. The second event is the release of US Gross Domestic Product Annualized for the third quarter (Q3). The growth rate is projected to remain steady at 5.2%.
Impact of Recent Economic Data
The recent economic data has shown some positive signs for both the US and Canada. On Wednesday, the US CB Consumer Confidence for December experienced significant growth, rising to 110.7 from 101.0 prior (revised down from 102.0). Additionally, the annual rate of US Existing Home Sales reached 3.82M in November, surpassing market expectations of 3.77M.
The Bank of Canada (BoC) recently revealed the Summary of Deliberations from its December 6 meeting. The BoC’s Governing Council agreed that interest rates were high enough to curb inflation, leading them to leave borrowing costs unchanged at the December meeting. However, the risks to the inflation outlook were deemed high, leaving the door open for a potential rate hike in the future.
As the USD/CAD pair continues to trade on a softer note, the anticipation of rate cuts from the Fed is limiting the upside potential of the US Dollar. The upcoming events, such as the release of Canadian Retail Sales data and US GDP growth numbers, are expected to bring volatility to the currency pair. It will be interesting to see how these events unfold, especially considering the positive economic data from both countries. Traders and investors should closely monitor these developments to make informed decisions.
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