Forex markets were closed on December 25, and the USD/CAD ratio hardly changed from its five-month low on December 24. Markets were quiet due to holiday trading, and by December 25, when most major exchanges were closed, the pair was at its lowest level since late July, hovering around 1.3675. Due to differing interest rate outlooks between the two nations, the Canadian dollar managed to slightly increase while the US dollar remained stable overall.
Light Activity Pins USD/CAD in Place
Most traders checked out for the holidays, so market activity was sparse. Nobody expected big moves in USD/CAD, even with mixed economic data on the table. Canada’s GDP slipped 0.3% in October, perfectly matching forecasts and erasing September’s small gain. Meanwhile, the US economy flexed, with Q3 GDP jumping to an annualised 4.3%. That beat both previous estimates and market expectations. Still, with so few players around, none of this really moved the needle.
BoC’s Steady Hand Keeps Loonie Supported
The policy gap between the Bank of Canada and the U.S. Federal Reserve remains supportive of the Canadian dollar. BoC held rates at 2.25% last month with the removal of the downward bias in favour of maintaining a target range for inflation. This was because the Bank of Canada had already slashed 100 basis points in interest rates earlier this year and markets read this as the end of the cycle. The majority of experts are predicting interest rates of 2.25% to stand ever-proud through until 2026, with a slim chance of an increase towards the end of that year.
Fed Moves Slower, Keeps Pressure on USD/CAD
The Fed’s expected to take its time easing. After cutting rates by 75 basis points this year, most traders think the Fed will sit tight in January. According to CME FedWatch, there’s just a 13% chance of another cut then. But looking further ahead, the market expects two more cuts in 2025. All of this keeps the pressure on USD/CAD and gives the Loonie a leg up—at least for now.
