USD/CAD is trading with a mild bid near 1.4030 in Friday’s Asian session, extending gains above the 1.4000 handle. However, the pair’s upside may be limited as markets increase their bets on further Federal Reserve easing next month. Traders are now awaiting Canada’s Q3 GDP release due later on Friday, which could provide fresh directional cues.
Fed rate-cut expectations cap USD upside
Dovish commentary from US central bank officials has strengthened expectations for a December rate cut. San Francisco Fed President Mary Daly said she supports lowering rates next month due to continued labor market weakness.
Similarly, Fed Governor Christopher Waller suggested the employment backdrop is soft enough to justify another 25 bps cut, although he emphasized that the final decision hinges on upcoming data delayed by the recent US government shutdown.
According to the CME FedWatch Tool, Fed funds futures now price an 87% chance of a 25 bps cut in December – up sharply from 39% just a week earlier. This limits the US Dollar’s potential for sustained upside.
Falling oil prices pressure CAD
Crude oil prices are retreating amid renewed optimism over a possible ceasefire between Ukraine and Russia. The slide in oil is weighing on the commodity-linked Canadian Dollar, offering support to USD/CAD. As Canada remains the largest oil supplier to the United States, lower oil prices typically exert downward pressure on the Loonie.
With no major US data on tap and Canada’s GDP report still ahead, the pair is likely to remain sensitive to shifts in risk sentiment, oil price dynamics, and evolving Fed expectations.
