Despite the recovery shown by the Canadian dollar two sessions ago, the balance has now shifted 0.5% higher in favor of the U.S. dollar, keeping USD/CAD near levels not seen in the past four years.
By : Julian Pineda, CFA, Senior Market Analyst
Despite the recovery shown by the Canadian dollar two sessions ago, the balance has now shifted 0.5% higher in favor of the U.S. dollar, keeping USD/CAD near levels not seen in the past four years. The imminent departure of Trudeau from the presidency has left political uncertainty, undermining confidence in the Canadian dollar and potentially increasing downward pressure on this currency.
Click the website link below to read our Guide to central banks and interest rates in 2025
cityindex.com
With the Fed signaling cautious rate cuts and the ECB focusing on growth risks, major central banks face pivotal decisions. How will these policies shape FX trends in 2025?
For several months, it was known that the Liberal Party wanted Trudeau to leave office. The pressure grew until the current Prime Minister decided to step aside to allow a new administration to take charge in Canada. On January 6, Trudeau announced that he would remain in office until the party selects a new leader. In his own words, he admitted he is not the best candidate to represent the country in upcoming elections, which are likely to be moved up from October.
This series of events has generated political uncertainty, especially due to the tariff threats Canada faces with the new U.S. administration. Additionally, no leader currently appears capable of addressing these political and economic challenges. In this context, it is understandable that the market opts for the U.S. dollar as a more stable option, intensifying bullish pressure in the main USD/CAD movements in recent sessions.
The next decision by the Bank of Canada is scheduled for January 25, 2025. For now, the institution is expected to maintain a “dovish” outlook, considering the positive performance of inflation and low economic growth. This could lead to a 50-basis-point reduction, bringing the rate to 2.75%.
Meanwhile, the Fed remains firm in its strategy to slow rate cuts, as mentioned on several occasions, primarily because the U.S. is still far from its 2% inflation target. According to the CME Group’s probability chart, there is a 95% chance that the interest rate will remain at current levels (4.25%-4.5%) during the central bank’s next decision on January 29.
Interest Rate Probability Chart for January - CME Group
Source: CMEGroup
In relation to the above, the Fed’s interest rate (4.5%) remains significantly higher than that of the Bank of Canada (BOC), which stands at 3.25%. With a neutral outlook in the U.S. and a dovish perspective in Canada, investment is likely to flow toward the U.S. dollar due to the higher interest offered, which could continue to drive buying pressure on USD/CAD.
USD/CAD has maintained a steady upward trend since late September 2024, reaching a peak in the 1.4467 zone. The differing outlooks of the central banks and Trudeau’s departure have kept the price near these highs.
Source: StoneX, Tradingview
cityindex.com
Despite the recovery shown by the Canadian dollar two sessions ago, the balance has now shifted 0.5% higher in favor of the U.S. dollar, keeping USD/CAD near levels not seen in the past four years.
From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.
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By : Julian Pineda, CFA, Senior Market Analyst
- USD/CAD is refusing to decline and is once again approaching the resistance zone at 1.4445, as political uncertainty in Canada continues to exert downward pressure on the Canadian dollar.
- The Fed has emphasized the need to slow the pace of interest rate cuts, a crucial factor in maintaining the long-term strength of the U.S. dollar and sustaining bullish pressure on USD/CAD.
Despite the recovery shown by the Canadian dollar two sessions ago, the balance has now shifted 0.5% higher in favor of the U.S. dollar, keeping USD/CAD near levels not seen in the past four years. The imminent departure of Trudeau from the presidency has left political uncertainty, undermining confidence in the Canadian dollar and potentially increasing downward pressure on this currency.
Click the website link below to read our Guide to central banks and interest rates in 2025
Central Banks FY 2025 Market Outlook - City Index AU
With the Fed signaling cautious rate cuts and the ECB focusing on growth risks, major central banks face pivotal decisions. How will these policies shape FX trends in 2025?
The End of an Era – Trudeau Resigns
For several months, it was known that the Liberal Party wanted Trudeau to leave office. The pressure grew until the current Prime Minister decided to step aside to allow a new administration to take charge in Canada. On January 6, Trudeau announced that he would remain in office until the party selects a new leader. In his own words, he admitted he is not the best candidate to represent the country in upcoming elections, which are likely to be moved up from October.
This series of events has generated political uncertainty, especially due to the tariff threats Canada faces with the new U.S. administration. Additionally, no leader currently appears capable of addressing these political and economic challenges. In this context, it is understandable that the market opts for the U.S. dollar as a more stable option, intensifying bullish pressure in the main USD/CAD movements in recent sessions.
What Are the Central Banks Saying?
The next decision by the Bank of Canada is scheduled for January 25, 2025. For now, the institution is expected to maintain a “dovish” outlook, considering the positive performance of inflation and low economic growth. This could lead to a 50-basis-point reduction, bringing the rate to 2.75%.
Meanwhile, the Fed remains firm in its strategy to slow rate cuts, as mentioned on several occasions, primarily because the U.S. is still far from its 2% inflation target. According to the CME Group’s probability chart, there is a 95% chance that the interest rate will remain at current levels (4.25%-4.5%) during the central bank’s next decision on January 29.
Interest Rate Probability Chart for January - CME Group
Source: CMEGroup
In relation to the above, the Fed’s interest rate (4.5%) remains significantly higher than that of the Bank of Canada (BOC), which stands at 3.25%. With a neutral outlook in the U.S. and a dovish perspective in Canada, investment is likely to flow toward the U.S. dollar due to the higher interest offered, which could continue to drive buying pressure on USD/CAD.
USD/CAD Technical Forecast
USD/CAD has maintained a steady upward trend since late September 2024, reaching a peak in the 1.4467 zone. The differing outlooks of the central banks and Trudeau’s departure have kept the price near these highs.
Source: StoneX, Tradingview
- Consistent Trend: The price maintains steady upward movements above the trendline, and for now, the 50- and 100-period simple moving averages continue to show an upward slope with no crosses that could jeopardize the current trend. However, it is almost essential for the price to set a new high above the 1.4445 zone to confirm the strength of the long-term uptrend.
- RSI Divergence: Equal highs in price movements and lower highs in the RSI indicator have created a bearish divergence, indicating an imbalance in recent buying movements, which could lead to short-term bearish corrections. Additionally, as the RSI line moves closer to the 50 level, it could signal indecision in the current resistance zone for buying movements.
Key Levels: - 1.44453: The current resistance level, corresponding to the zone marked by the latest highs in the uptrend. Oscillations above this level strengthen buying interest and could extend the uptrend.
- 1.43257: A new support zone, coinciding with the recent trading session lows and converging with the upward trendline marked on the chart. Bearish corrections could find support at this level during upcoming sessions.
- 1.42087: A key support level that previously served as resistance, respected in mid-December 2024. Oscillations near or below this level would jeopardize the current uptrend formation and create a new scenario in favor of the Canadian dollar.
USD/CAD Update: The Canadian Dollar Remains Weak Amid Political Uncertainty
Despite the recovery shown by the Canadian dollar two sessions ago, the balance has now shifted 0.5% higher in favor of the U.S. dollar, keeping USD/CAD near levels not seen in the past four years.
From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.
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