USD/CAD is paring gains from the previous session, trading around 1.3710 during Asian hours on Friday. The pair is depreciating as the US Dollar (USD) weakens amid expectations of two additional Federal Reserve rate cuts in 2026.
Markets are preparing for US President Donald Trump to nominate a successor to Fed Chair Jerome Powell in May, a move potentially tilting monetary policy toward lower interest rates. The December FOMC Minutes indicated a divided outlook: most participants felt it appropriate to pause further cuts if inflation continues to decline, while some officials argued for leaving rates unchanged for a period following the three rate reductions in 2025 aimed at supporting the weakening labor market.
Meanwhile, the Canadian Dollar (CAD) is finding support from recent Bank of Canada (BoC) communications showing a noncommittal stance on further tightening, with a growing bias toward holding rates. On the data front, Statistics Canada reported a 0.3% contraction in real GDP for October, confirming cooling growth momentum heading into Q4. Investors are now awaiting the S&P Global Canada Manufacturing PMI for December due later today.
The commodity-linked Loonie is also receiving support against the Greenback from higher oil prices, given Canada’s status as the largest crude exporter to the US. Crude prices could edge higher due to potential supply concerns stemming from escalating geopolitical tensions.
Reports indicate Ukrainian drones struck Russian oil facilities, and both nations exchanged accusations of civilian attacks on New Year’s Day, despite intensive talks overseen by President Trump aimed at ending the conflict. Furthermore, Reuters reported that the US Treasury sanctioned oil traders and four “shadow fleet” tankers accused of helping Venezuela evade restrictions.
WTI oil prices are holding ground near $57.60 after posting modest losses in the previous session. Traders await Sunday’s virtual OPEC+ meeting, with expectations that the group will maintain its November decision to pause further production increases.
