The USD/CAD currency pair has witnessed a significant slump, dropping below 1.4400 and reaching near 1.4360, as the US Dollar undergoes a mild correction following a robust rally.
The US Dollar had surged on Wednesday after the Federal Reserve’s monetary policy meeting. The Fed cut its key borrowing rates by 25 basis points to 4.25%-4.50%, yet its signal of fewer interest rate cuts for 2025 caught the market’s attention. Based on the Fed’s dot plot, policymakers foresee the Federal Fund rates reaching 3.9% by the end of 2025. Fed Chair Jerome Powell justified the cautious stance on rate cuts by citing factors such as inflation uncertainty, improved employment conditions with easing downside risks, and strong economic growth in the second half of the year.
On the economic data front, the second estimate of the US Gross Domestic Product (GDP) for the third quarter indicated a faster growth pace of 3.1%, surpassing the preliminary estimate of 2.8%. Additionally, Initial Jobless Claims for the week ending December 16 came in lower at 220K, better than the estimated 230K and the previous release of 242K. These figures have further contributed to the complex market dynamics.
Conversely, the outlook for the Canadian Dollar (CAD) remains bearish. The Bank of Canada (BoC) is expected to further ease its interest rates due to growing concerns that inflation might fall below the bank’s target of 2%. This anticipation adds to the downward pressure on the CAD against the US Dollar.
The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, is also in a corrective phase after hitting a fresh two-year high near 108.25. As the US Dollar takes a breather from its recent strong run, the USD/CAD pair is reacting accordingly, with its current decline highlighting the ebb and flow of the currency market influenced by both domestic and central bank policies on both sides of the border.
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