The USD/CAD pair is trading on a softer note during the early Asian session on Thursday. After bouncing off the four-month lows of 1.3310, the pair has rebounded to 1.3350. However, the upside of the US Dollar (USD) may be limited due to the anticipation of three rate cuts from the Federal Reserve (Fed). Investors are eagerly awaiting the release of Canadian Retail Sales and US GDP growth numbers, which could trigger volatility in the currency pair ahead of the holiday season.
Last week, the Fed Chair Jerome Powell made hawkish remarks, signaling that the central bank will cut interest rates by a total of 75 basis points (bps). This has exerted some selling pressure on the US Dollar (USD). Although Powell did not provide any guidance on the timeline of rate cuts, the markets are expecting a cut as early as March.
On Wednesday, US CB Consumer Confidence for December saw significant growth, rising to 110.7 compared to the previous reading of 101.0 (revised down from 102.0). Additionally, the annual rate of Existing Home Sales climbed to 3.82M in November, surpassing market expectations of 3.77M. These positive economic indicators could provide some support to the USD, offsetting the impact of the anticipated rate cuts.
On the Loonie front, the Bank of Canada (BoC) revealed the Summary of Deliberations of its December 6 meeting. The Governing Council acknowledged that interest rates were high enough to curb inflation, thus leaving borrowing costs unchanged. However, they also highlighted the high risks to the inflation outlook, signaling the possibility of another rate hike in the future. Traders will closely monitor the upcoming Canadian Retail Sales data for October, which is expected to show an increase of 0.8% MoM, up from 0.6% in the previous reading.
In addition to the Canadian Retail Sales data, market participants will also pay attention to the release of US Gross Domestic Product Annualized for the third quarter (Q3). The growth rate is projected to remain steady at 5.2%. Any deviation from this forecast could generate volatility in the currency pair.
The USD/CAD pair faces a volatile trading session as investors await the Canadian Retail Sales and US GDP growth numbers. The sell-off in the USD due to anticipated rate cuts from the Fed is being counterbalanced by positive economic data such as US CB Consumer Confidence and Existing Home Sales. Meanwhile, the BoC’s signal of risks to the inflation outlook and potential rate hikes adds to the uncertainty. Traders should closely monitor these events for potential trading opportunities in the currency pair.