Since the beginning of 2024, the US dollar has been steadily gaining ground against its Canadian counterpart. Let’s delve into whether these numbers stand out compared to other major currency pairs and what to expect from the Canadian dollar in 2024 and 2025.
The chart below illustrates that the USDCAD pair has increased by nearly 3% in the first quarter of this year, indicating a consistent and robust upward trend.While many market observers anticipate challenges for the US dollar, the reality isn't as grim as expected. For those interested in monitoring economic developments that could influence the USD (along with other currencies), the economic calendar is a valuable resource. This tool provides up-to-date information on all significant and minor economic announcements and meetings.
Now, let’s add commodity currencies and major currencies into the same chart showing rate fluctuations in 2024. This comparison reveals that while the Canadian dollar has outperformed its commodity counterparts (Australian and New Zealand dollars), it has lagged behind the euro and the pound (significant rivals to the USD).
Looking at a one-year timeframe, one can notice that the CAD has been even more resilient than the euro.
As previously mentioned, markets expect weakness in the USD during the second half of 2024 and beyond. This expectation is tied to forecasted shifts in the Federal Reserve’s policy, the emergence of other major currencies, and potential troubles for the US economy in the long run.
The Fed is expected to lower interest rate in a few months, which will likely exert downward pressure on the USD against most major currencies. Besides, it's worth keeping in mind that the Bank of Canada may initiate its own rate reduction cycle simultaneously or even earlier, and then, which could cause the CAD to dip against the USD before bouncing back.
Furthermore, it's important to acknowledge the geographical proximity between the US and Canada. This proximity is significant because the economies of these countries are intertwined. For instance, a slowdown in economic activity in the United States can spell trouble for Canadian exports. Admittedly, the disparity in movements between the USD and CAD may not be as dramatic as with other major currencies. Nonetheless, experts anticipate the Canadian dollar to strengthen against the US dollar by the end of 2024, with this trend likely continuing into 2025.
