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26/05/25
56
USD/CAD Plummets as US Dollar Weakens Amid Fiscal Concerns
The USD/CAD currency pair is experiencing continued selling pressure at the onset of the week, primarily due to a weakening US Dollar. Concerns regarding US fiscal health, combined with expectations that the Federal Reserve will be prompted to reduce interest rates further, have resulted in the dollar hitting a one-month low. The Canadian Dollar’s resilience amid these developments is being bolstered by reduced expectations for a rate cut by the Bank of Canada.
The downtrend seen in USD/CAD has persisted, especially during early trading sessions, with the pair dropping below the significant threshold of 1.3700. This marks its lowest point since October 2024. A broad decline in the US Dollar, reflected in the US Dollar Index, has amplified this movement. Factors contributing to the dollar’s weakness include concerns over an expanding fiscal deficit, as projected tax cuts and spending initiatives could increase the national deficit by approximately $4 trillion over the next decade. This situation poses a challenge to the federal government’s fiscal stability.
Additionally, recent economic data suggested a decline in inflationary pressures, as evidenced by softer Consumer Price Index and Producer Price Index figures. This has reinforced investor views that the Federal Reserve may decrease interest rates in the latter part of the year to stimulate the economy, further putting downward pressure on the USD and the USD/CAD pair.
Conversely, the Canadian Dollar is gaining strength, supported by stronger-than-expected core inflation data from Canada, which has diminished the likelihood of a June interest rate cut by the Bank of Canada. This positive economic indicator seems to outweigh the negative impact of a slight decline in crude oil prices, which typically influences the commodity-dependent Loonie. As a result, the outlook for USD/CAD continues to suggest a potential depreciation of the US Dollar against the Canadian Dollar.
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