USD/CAD falls further amid weak US Dollar, recovery in oil prices

• USD/CAD remains on backfoot as investors dump the US Dollar after the Fed’s dovish guidance.
• Investors await the US Retail Sales data for November.
• A sharp recovery in oil prices has strengthened the Canadian Dollar.

The USD/CAD pair dropped further to near 1.3450 amid a sell-off in the US Dollar due to dovish guidance on interest rates by the Federal Reserve (Fed) and a decent recovery in the oil prices. The Loonie asset weakened as the US Dollar Index (DXY) dropped to near its five-month around 102.55 amid a risk-off mood.

S&P500 futures have added gains in the European session after a bullish Wednesday, portraying an improvement in the risk appetite of the market participants. The 10-year US Treasury yields have extended the downside to near 3.95%.

The USD Index has shifted into a bearish trajectory as the Fed is preparing to cut interest rates at a higher pace amid progress in inflation declining towards 2%. According to new economic projections, the core Personal Consumption Expenditure (PCE) is seen falling to 2.4% and 2.2% in 2024 and 2025 respectively.

Investors are expecting a ‘soft landing’ by the Fed as fresh economic projections indicate that the jobless rate won’t run above 4.1%.

Further action in the US Dollar will be guided by the US Retail Sales data for November, which will be published at 13:30 GMT. As per the expectations, the economic data is seen contracting at a steady pace of 0.1%.

On the oil front, oil prices have recovered after discovering support near $67.00 amid expectations that the rate-tightening campaign by the Fed has come to an end. It is worth noting that Canada is the leading exporter of oil to the United States and higher oil prices support the Canadian Dollar.