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27/12/24
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USD/CAD Exchange Rate Fluctuates as Crude Oil Prices Rise Amid Economic Outlook Concerns
The USD/CAD exchange rate is facing some minor fluctuations due to an uptick in crude oil prices. As oil prices enter a period of weekly gains, reports indicate that major European energy firms are prioritizing oil production over renewable energy sources, extending this strategy through 2025.
During Friday’s Asian trading session, the USD/CAD pair hovered around 1.4410, reflecting tepid movement following a two-day rise. The Canadian Dollar (CAD) is benefiting from rising crude oil prices, particularly since Canada is the largest oil supplier to the United States. Currently, West Texas Intermediate (WTI) oil is trading near $69.50 per barrel, supported by the trend of European firms focusing on more immediate returns from oil and gas rather than investing in renewable sources.
However, the fundamental outlook for the Canadian economy appears less favorable. Reports suggest a potential month-over-month contraction of 0.1% for Canada’s Gross Domestic Product (GDP) in November, marking its first decline of the year. This aligns with recent warnings issued by the Bank of Canada regarding downgraded growth projections. The government has also revised its forecasts, lowering expected growth for 2025 to 1.7% from 1.9% and for 2026 to 2.1% from 2.2%. As expectations mount that the Bank of Canada might implement further rate cuts to stimulate growth, the interest rate gap with the U.S. could widen, negatively impacting the CAD’s attractiveness.
On the other hand, the U.S. Dollar (USD) is gaining strength due in part to a reduction in anticipated rate cuts by the Federal Reserve. In its recent meeting, the Fed reduced rates by a quarter point and adjusted its future projections to suggest only two rate cuts in 2025. Consequently, the U.S. Dollar Index (DXY), which evaluates the USD against six major currencies, remains above 108.00, indicating robust market sentiment despite subdued Treasury yields at 4.32% for 2-year bonds and 4.57% for 10-year bonds.
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