The USD/CAD pair extended its decline for a second straight session, trading around 1.4090 during Monday’s Asian trading hours. The depreciation is primarily driven by a weaker US Dollar (USD), as market expectations for a Federal Reserve rate cut in December have significantly increased.
According to the CME FedWatch Tool, the probability of a 25-basis-point (bps) Fed rate cut in December has jumped to 69%, a notable rise from 44% just a week ago. This sentiment was bolstered by recent comments from Federal Reserve officials. Last Friday, New York Fed President John Williams indicated that policymakers might still cut rates in the “near-term,” while Fed Governor Stephen Miran explicitly stated that Nonfarm Payrolls data supports a December cut, adding he “would vote for a 25-bps cut” if his vote were decisive.
However, the downside for USD/CAD might be limited by potential weakness in the Canadian Dollar (CAD). Canada, being the largest crude exporter to the US, is vulnerable to falling Oil prices, which could put pressure on the loonie.
West Texas Intermediate (WTI) crude oil prices have fallen for a fourth consecutive session, currently trading around $57.90 per barrel. This decline is attributed to US efforts towards a Russia-Ukraine peace deal, which could increase crude supply in an already well-supplied market.
Domestically, Canadian retail sales data released Friday showed a 0.7% decline in September, meeting market expectations and reversing August’s 1% gain. This decrease was largely due to a 2.9% drop in motor vehicle and parts dealer sales, including a 3.6% fall in new car sales.
