**USD/CAD Outlook: ING Predicts Mounting Trade Pressures on Canadian Dollar**
*Original Reporting by Marketscreener.com and ING Analysts*
The Canadian dollar (CAD) continues to face challenges in the foreign exchange markets, with ING economists projecting increased headwinds for the currency against the U.S. dollar (USD) in the near term. Primarily driven by external trade factors and domestic monetary policy dynamics, the USD/CAD pair is likely to remain vulnerable to upward pressure on the U.S. dollar.
This analysis is based on recent projections by ING, as reported on MarketScreener.com. The economists at ING have outlined various global and regional factors influencing the outlook for the USD/CAD exchange rate. Below is a comprehensive breakdown and expansion of ING’s original assessment, incorporating recent economic data and commentary from other reputable sources to provide a well-rounded 1000-word analysis of the trajectory for USD/CAD.
## Macroeconomic Trends Influencing USD/CAD
The USD/CAD exchange rate is subject to a slew of macroeconomic variables, including trade balances, commodity prices, central bank policies, and global economic conditions. Over the past few quarters, these variables have increasingly favored the U.S. dollar, thereby pointing to further depreciation pressure on the Canadian dollar.
### 1. U.S. Dollar Resilience
One of the main themes highlighted by ING concerns the persistent strength of the U.S. dollar:
– The U.S. economy has remained more resilient than expected despite high interest rates imposed by the Federal Reserve.
– Investor sentiment has shifted toward safe-haven assets due to global geopolitical uncertainty, further boosting the USD.
– Strong labor market data and consistently positive retail sales metrics in the U.S. also reinforce USD strength.
– As of mid-2024, the DXY (Dollar Index) has remained above the key psychological level of 105, reinforcing broader USD demand across G10 currencies.
According to ING, the strong U.S. economic backdrop contrasts sharply with weaker growth prospects globally, particularly in commodity-exporting economies such as Canada.
### 2. Deteriorating Canadian Trade Balance
Another headwind for the CAD is a recent deterioration in Canada’s trade balance:
– Canada has traditionally run a more balanced or even positive trade surplus, largely due to its robust energy and natural resource exports.
– However, recent trade data from Statistics Canada indicates a widening deficit.
– The slowdown in global demand, particularly from China and other manufacturing-heavy economies, has led to reduced exports of Canadian materials.
– Meanwhile, Canadian imports have remained relatively stable, further skewing the trade balance.
ING analysts note that this declining trade surplus is reducing net demand for the Canadian dollar in global currency markets, thereby putting downside pressure on CAD.
### 3. Falling Energy Prices and Implications for CAD
As one of the world’s largest crude oil exporters, Canada’s economic health, and by extension the CAD, is closely linked to global oil prices:
– Since early 2024, West Texas Intermediate (WTI) crude prices have exhibited volatility, with periods falling below $70 per barrel.
– The recent surge in U.S. crude production, baggage in demand from China, and geopolitical uncertainties in the Middle East have contributed to erratic price action.
– A decrease in oil price weakens Canada’s terms of trade and erodes exporters’ revenues, which in turn affects the valuation of CAD.
ING sees continued downward pressure on energy markets as a negative driver for CAD. This situation is further complicated by the shift toward clean energy policies and increasing global investment in alternatives to oil and gas, which may moderate long-term demand for Canadian energy exports.
## Bank of Canada’s Policy Outlook
Monetary policy differentials between the U.S. and Canada are another pivotal factor shaping the outlook for USD/CAD.
### 1. Bank of Canada (BoC) Rate Path
– Unlike the Federal Reserve, which has suggested that interest rates may stay elevated longer if inflation proves sticky
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