USD/CAD strengthens above 1.4400, focus on Canadian retail sales, US core PCE price index

In early Asian trading on Friday, USD/CAD strengthened to around 1.4405, mainly supported by the strength of the U.S. dollar. Traders will be closely watching data on Canadian retail sales for October and the U.S. core personal consumption expenditures (PCE) price index due later on Friday.

The Federal Reserve lowered the federal funds rate by 25 basis points (bps), bringing the target range to 4.25% and 4.50%. The latest Summary of Economic Projections (SEP), or "dot plot," shows the Fed intends to reduce the number of interest rate cuts next year from four to just two, with each cut of 25 basis points. That stance proved significantly more hawkish than market expectations, broadly boosting the U.S. dollar (USD).

On the other hand, a fall in Canadian consumer price index (CPI) inflation in November increased expectations that the Bank of Canada (BOC) will cut interest rates further in 2025, although the era of big rate cuts may be over. This could weigh on the Canadian dollar (CAD) and boost the USD/CAD pair.

Rachel Siu, head of Canadian fixed income strategy at BlackRock, said, "Overall, the November inflation report was mixed. Although overall inflation fell to 1.9% year-on-year, core indicators showed some stickiness. We continue to expect the Bank of Canada to Cut the policy rate by 25 basis points in January and shift to a more gradual approach in 2025.”