**USD/CAD Holds Above 12-Week Low Amid Weekly Decline: Market Overview and Outlook**
*Original article by Veselin Petkov at TradingPedia.com. Expanded and supplemented for informational depth.*
The US dollar continued its downward trend against the Canadian dollar during the week ending December 14, as USD/CAD closed near a 12-week low. While the pair managed to hold just above critical support, it still marked a notable weekly loss as investor sentiment shifted following recent economic data and central bank decisions. This article takes a deeper look at what drove the USD/CAD pair lower, the technical levels in play, and potential developments in the currency market heading into 2024.
## Key Drivers of USD/CAD’s Decline
Several macroeconomic and monetary policy factors contributed to the weakness in the USD/CAD currency pair. Market participants reacted strongly to dovish signals from the Federal Reserve while also digesting economic indicators from both the United States and Canada. Here are the primary drivers behind the pair’s recent movement:
### 1. Shift in Federal Reserve’s Policy Stance
– On December 13, the Federal Reserve concluded its final policy meeting of the year, keeping the benchmark federal funds rate unchanged at between 5.25 percent and 5.50 percent.
– More notably, Fed Chair Jerome Powell surprised markets with a more dovish tone during the press conference, indicating that the central bank’s tightening cycle may be over.
– The dot plot, which reflects the outlook of Fed officials, pointed to three possible rate cuts in 2024, which was more accommodative than market participants had expected.
– The prospect of lower interest rates in the US reduced support for the greenback and heightened demand for risk-sensitive assets and alternate currencies like the Canadian dollar.
### 2. Canadian Employment Data
– Canada’s labor market demonstrated moderate strength in the latest data release. Statistics Canada reported that the country added 25,000 jobs in November 2023, beating expectations of around 15,000.
– The unemployment rate, however, ticked higher to 5.8 percent from the previous 5.7 percent, suggesting slight loosening in labor conditions.
– While mixed, the jobs data underpinned the Canadian dollar as it revealed continued resilience in employment figures despite global economic headwinds.
### 3. Crude Oil Prices and Their Impact on CAD
– The Canadian dollar, often referred to as a petrocurrency, tends to exhibit sensitivity to trends in crude oil markets due to Canada’s status as a major oil exporter.
– Over the past week, crude oil prices stabilized after a period of volatility stemming from concerns about global demand.
– West Texas Intermediate (WTI) crude hovered around the mid-70s USD per barrel range, offering a modest tailwind for the CAD.
### 4. US Inflation Data
– Data released earlier in the week showed that headline CPI in the US rose 3.1 percent year-over-year in November, down from 3.2 percent in October.
– Core CPI, which strips out volatile food and energy prices, was up 4.0 percent year-over-year, maintaining its previous pace.
– The softening headline inflation number added to expectations that the Fed may begin easing sooner than previously forecast, placing additional pressure on the US dollar.
### 5. Declining US Treasury Yields
– US Treasury yields also declined last week, with the 10-year note yield falling below 4 percent for the first time since late August.
– Lower yields reduce the appeal of US-denominated assets and support capital flows into other high-yielding or economically stable currencies, including the Canadian dollar.
## USD/CAD Weekly Performance
– The USD/CAD currency pair began the week trading around 1.3590 and steadily declined throughout the trading sessions.
– It touched an intraday low near 1.3385 on Friday, its lowest level since September, before closing modestly higher
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