**CAD Loses Ground Against US Dollar Amid Broad USD Strength: USD/CAD Near Monthly High**
*Original source: VT Markets*
The Canadian dollar (CAD) continued its slide against the US dollar (USD) as USD/CAD hovered near a monthly high around the 1.3875 mark. This trend is largely driven by the persistent strength of the US dollar across global foreign exchange markets. The current trading dynamics highlight growing divergence between US economic resilience and Canada’s more tempered outlook.
Amid increasing market expectations for a prolonged period of higher US interest rates due to stubborn inflation and positive economic metrics, the Canadian dollar is struggling to find footing. Traders and investors are increasingly favoring the greenback, which has surged not only against the loonie but also against a range of other major currencies.
This article provides a comprehensive breakdown of the current market environment impacting USD/CAD, key factors contributing to the loonie’s underperformance, and the broader implications for forex markets. Insights are also drawn from various financial analysts and sources to create a cohesive picture of what lies ahead for CAD in the face of USD’s strength.
## Key Highlights at a Glance
– USD/CAD rose near the 1.3875 resistance level, close to March’s monthly high
– Upward movement fueled by strong US data and hawkish expectations around the Federal Reserve
– Canadian economic momentum remains softer, which weakens CAD sentiment
– Crude oil, a traditional support for CAD, continues to show volatility
– Market participation escalates around interest rate expectations and economic divergence
– Potential technical resistance levels remain in focus around 1.3900
## US Dollar Dominance: Core Drivers
The US dollar has experienced renewed bullish momentum due to a mix of favorable macroeconomic indicators and shifting central bank sentiment. Specific factors contributing to USD strength include:
### 1. Strong US Economic Data
Robust performance in the US labor market, manufacturing, and consumer spending has painted a picture of an economy that is still resilient:
– Non-Farm Payroll (NFP) reports have consistently beaten expectations, with the latest data showing job growth exceeding 300,000 in April 2024
– US GDP grew at an annualized pace of 2.4% in Q1, higher than market forecasts
– Consumer Price Index (CPI) remains elevated, indicating persistent inflation pressures
These data points have driven speculation that the Federal Reserve will maintain its higher-for-longer interest rate stance, supporting the USD in the process.
### 2. Hawkish Federal Reserve Tone
Federal Reserve Chair Jerome Powell has reiterated the need to keep rates elevated until inflation shows a sustained path lower:
– The central bank left the benchmark rate in the 5.25% to 5.50% range in its latest meeting
– Minutes from recent FOMC meetings reveal growing concern over sticky core inflation
– Traders have scaled back bets on rate cuts in mid-2024, now pricing in a possible cut in Q4 or even 2025
According to CME FedWatch, market-implied probabilities of a rate cut shifted notably from July to December 2024, bolstering the greenback as investors adjust long USD positions accordingly.
### 3. Safe-Haven Buying
Global geopolitical risks, such as the ongoing conflict in Ukraine, competition between the Western and Chinese blocs, and concerns in the Middle East, have all contributed to safe-haven flows into the dollar.
These risk-off sentiments typically benefit the USD at the expense of commodity-linked and risk-sensitive currencies like the loonie.
## CAD Weakness: Domestic and External Pressures
While the US dollar shines across forex markets, the Canadian dollar has faltered for several interlinked reasons:
### 1. Weak Economic Growth in Canada
Canada’s economy shows clear signs of losing momentum:
– Canada’s Q1 GDP grew by just 0.3%, missing analyst expectations
– Unemployment rate has ticked up to 6.
Read more on USD/CAD trading.