USD/CAD regained traction during Monday’s Asian session, climbing toward 1.3980 after earlier losses. However, the pair’s upside may remain constrained as markets intensify bets on a Federal Reserve (Fed) rate cut this month. Traders now turn their attention to the US ISM Manufacturing PMI for November, due later today, for fresh direction.
Expectations for a December Fed cut have strengthened following a series of dovish comments from policymakers and softer US macro data. According to the CME FedWatch tool, markets are now pricing in an 87% chance of a 25 bps cut next week, a dynamic that could continue to weigh on the US Dollar (USD) against the Canadian Dollar (CAD).
Market drivers
Adding to the pressure on the Greenback, reports suggest White House economic adviser Kevin Hassett has emerged as the frontrunner to become the next Fed chair. Hassett is considered closely aligned with President Donald Trump and supportive of more aggressive rate reductions, further reinforcing the market’s dovish outlook.
On the Canadian side, upbeat GDP figures have encouraged traders to scale back expectations for additional easing from the Bank of Canada (BoC). Canada’s economy expanded at an annualized 2.6% in Q3, rebounding sharply from a revised 1.8% contraction in Q2 and beating forecasts of 0.5% growth. The stronger print bolstered demand for the Loonie and provided a counterbalance to USD strength.
