USD/CAD Retreats as BoC Signals Gradual Policy Adjustments

USD/CAD begins Thursday’s Asian session with further declines, trading near 1.4150. This marks the pair’s second consecutive day of losses as it continues to retreat from Wednesday’s high of 1.4194, the loftiest level since April 2020. The Canadian Dollar’s (CAD) strength follows the Bank of Canada’s (BoC) dovish guidance regarding future monetary policy adjustments.

BoC’s Gradual Approach Shapes USD/CAD Movement

The BoC’s recent 50 basis point rate cut, which lowered the benchmark rate to 3.25%, has been accompanied by cautious commentary. With Canada grappling with multi-year high unemployment levels, the central bank is pivoting toward a measured stance. BoC Governor Tiff Macklem emphasized a gradual approach, stating, “We anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected.”
Macklem’s remarks underscore the diminishing necessity for restrictive monetary policy in Canada. This sentiment has bolstered the CAD, driving the USD/CAD pair lower, despite broader market stability following U.S. Consumer Price Index (CPI) data.

Broader Market Dynamics

U.S. inflation figures released on Wednesday met expectations, with the headline CPI rising to 2.7% year-over-year in November, while the core CPI climbed to 3.3% YoY. These results have fueled speculation that the Federal Reserve will proceed with a 25 basis point rate cut at its December meeting.

Market participants now await the release of the U.S. November Producer Price Index (PPI) for additional direction. The CME FedWatch Tool currently reflects a 99% probability of a Fed rate reduction, which could influence USD/CAD further.

As the USD/CAD pair hovers near 1.4150, its trajectory will depend on evolving monetary policies in both the U.S. and Canada, as well as key economic data releases.

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