The USD/CAD pair faces slight pressure near the key support of 1.4400 in Monday’s North American session. It ticks lower as the US Dollar (USD) trades subduedly in an illiquid market ahead of the New Year. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, struggles around 108.00.
US Dollar’s Performance and Outlook
Year-End Gains
Though the Greenback edges lower on Monday, it’s almost set to wrap up the calendar year with 6.7% gains. A large part of these gains came in the last three months as investors priced in strong growth and higher inflation in the US economy in 2025 after Republican Donald Trump won the Presidential elections.
Trump’s Policies and Fed’s Response
Trump is expected to tighten immigration controls, raise import tariffs and lower taxes under his administration. The impact is already visible as the Federal Reserve (Fed) has signaled fewer interest rate cuts for the next year. However, Fed Chairman Jerome Powell has refrained from guiding any impact of Trump’s policies on the economy, inflation, and interest rates. He said on December 18 that it’s very premature to make any conclusions as they don’t know what will be tariffed, from what countries, for how long, or in what size.
Canadian Dollar’s Outlook
BoC’s Interest Rate Plans
The broader outlook of the Canadian Dollar (CAD) remains weak as the Bank of Canada (BoC) is expected to continue reducing interest rates further to avoid risks of inflation undershooting the central bank’s target of 2%.
BoC’s Rate Reductions This Year
The BoC reduced its key borrowing rates by 175 basis points (bps) to 3.75% this year.
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