USD/CAD trims some losses and returns to the 1.4050 area

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The US Dollar is retracing losses against the Canadian Dollar on Thursday, following a sharp reversal in the previous two days.

The US Dollar bounces from weekly lows against the Loonie and reaches the 1.14050 area.
Market expectations of further Fed easing are weighing on the US Dollar.
Canada's GDP is expected to show that the economy bounced up in Q3.

The US Dollar is retracing losses against the Canadian Dollar on Thursday, following a sharp reversal in the previous two days. The pair is trading at 1.4048 at the time of writing, after bouncing at 1.4030, but maintains its immediate bearish tone intact and is 0.3% lower on the week so far.
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On Wednesday, US Durable Goods Orders beat expectations, and weekly Jobless Claims declined unexpectedly to the lowest levels in the last seven months. These figures, however, failed to alter the view that the Federal Reserve (Fed) is likely to cut interest rates by 25 basis points at its December 10 meeting.

The Fed is expected to accelerate its easing cycle

Beyond that, White House National Economic Council Director Kevin Hassett has emerged as the best-positioned to replace Jerome Powell as Fed Chair after his term ends in May. Hasset is an open dove, and his nomination would boost expectations of further monetary easing in 2026.

The CME Fedwatch tool shows an 85% chance of a quarter-point rate cut in December, up from about 40% last week, and points to two or three more rate cuts in 2026.

Trading volumes are likely to remain subdued on Thursday, with US markets closed for the Thanksgiving bank holiday. A mild recovery in Crude prices is providing some support to the Loonie, although the highlight of the week is Canada’s Q3 GDP, which is expected to show a moderate economic recovery after two consecutive quarters of contraction.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.