The USD/CAD pair traded in a narrow range around the 1.3800 level during Asian trading hours on Monday, following modest gains in the previous session. Upside momentum remains limited as the commodity-linked Canadian Dollar (CAD) draws support from rising Oil prices, reflecting Canada’s position as the largest crude exporter to the United States.
West Texas Intermediate (WTI) crude Oil was trading near $57.00 per barrel at the time of writing, extending gains amid growing concerns over potential supply disruptions. Tensions between the United States and Venezuela have intensified after reports that US authorities pursued another vessel near Venezuelan waters, following the seizure of two Oil tankers earlier this month.
Geopolitical risks are also elevated in Eastern Europe. Ukraine reportedly struck a Russian oil tanker in the Mediterranean Sea for the first time, following earlier attacks on Lukoil-linked infrastructure in the Caspian Sea. Meanwhile, US and Ukrainian officials said on Sunday that talks held in Miami were “productive and constructive,” although no concrete breakthrough was announced.
Despite the supportive backdrop for the Canadian Dollar, downside pressure on USD/CAD remains contained as the US Dollar finds some support from cautious sentiment surrounding the Federal Reserve’s policy outlook. Cleveland Fed President Beth Hammack said on Sunday that monetary policy is in a good position to pause, allowing policymakers to assess the economic impact of the cumulative 75 basis points (bps) of rate cuts during the first quarter, according to Bloomberg.
Interest rate expectations continue to favor a pause. The CME FedWatch tool indicates a 79.0% probability that the Fed will hold rates steady at its January meeting, up from 75.6% a week earlier. In contrast, the likelihood of a 25-bps rate cut has declined to 21.0%, signaling reduced expectations for near-term easing.
US sentiment data added a mixed tone to the market. The University of Michigan’s final reading showed that the Consumer Sentiment Index was revised lower to 52.9 in December from 53.3 previously. The Consumer Expectations Index also slipped to 54.6 from 55.0, while one-year inflation expectations were revised higher to 4.2%, compared with 4.1% in both the preliminary estimate and the prior month.
Ready to start trading Forex? Join iXBroker today and kick-start your trading journey now!
