USD/CAD Struggles as Labour Strength Pressures Outlook
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The USD/CAD pair remains pressured near an 11-week low, trading around 1.3800[1] in Monday's early Asian sessions. It is believed that the pair extended its Friday’s sharp decline after Canada's stronger labour market data[2]. The unemployment rate fell to 6.5%[3], supported by notable growth in part-time jobs and solid full-time employment gains. This led markets to reduce near-term Bank of Canada (BoC)[4] easing expectations. The stronger Canadian dollar is firmly supported, keeping the pair close to recent lows.
Market commentators indicate that the price action is consolidating above the 1.3820 region, with traders weighing if momentum favours a further downward move. The BoC is expected to hold its benchmark rate steady at 2.25%[5] this Wednesday. Last week’s hawkish employment data provided short-term support to the Loonie. Nonetheless, ongoing uncertainty over US–Canada trade relations tempers optimism around the Canadian dollar. President Trump’s[6] comments, following talks with Canadian and Mexican leaders, lacked clarity on when renewed trade negotiations will begin, creating a potential hurdle for the currency.
Market reports[7] highlight the US dollar trading cautiously ahead of the Federal Reserve’s (Fed) policy announcement. Markets mostly expect a 25-basis-point cut to 3.50%–3.75%[8]. Weakening labour market data supports the case for easing. A softer policy stance might keep downward pressure on the pair unless risk sentiment strongly favours the greenback.
Analysts suggest[9] the pair may struggle to regain higher levels soon unless US data surprises positively. Medium-term risks for the Canadian dollar remain. Trade uncertainties and slowing global demand continue to pose challenges. A sustained break below 1.3780 could reveal further downside. Recovery attempts are likely to face resistance around 1.3850–1.3880. The USD/CAD exchange rate remains under downside pressure as strong Canadian labour data and cautious Fed expectations limit prospects for a near-term rebound.
EUR/USD Strengthens on Mixed Monetary Signals
The EUR/USD pair posted modest gains, trading near 1.1660[10] in Monday's early Asian trade, with the euro supported by a softer US dollar. Price action stays within recent ranges, though the bias is slightly up as markets anticipate a 25-basis-point rate cut[11] from the Fed on Wednesday. The chance of lower US rates continues to pressure the greenback, tempered by caution that policymakers may issue a more hawkish message alongside the cut.
Market commentators[12] suggest the current pricing reflects an 87% chance of a quarter-point cut, lowering the federal funds rate to 3.50%–3.75%. A “hawkish cut”[13] remains the key risk for the pair, especially if the Summary of Economic Projections indicates little room for more easing. Dissent from both hawkish and dovish[14] members, as market strategists note, could also limit further gains in the major pair by boosting US dollar demand. Traders will closely watch upcoming US data releases, as any weakening in activity or confidence could strengthen expectations for more rate cuts early in 2025.
In the Eurozone[15], slightly firmer-than-expected inflation in November has eased the urgency for the European Central Bank (ECB) to start easing. This has given the euro a modest boost, as markets widely expect the ECB[16] to keep policy rates unchanged on 18 December. The belief that the ECB may have reached the end of its rate-cutting cycle has helped steady sentiment towards the single currency in the short term.
Analysts[17] suggest that medium-term risks for the pair remain significant, driven by diverging monetary policies, macroeconomic data, and geopolitical factors. Diverging economic outcomes, along with inflation uncertainty in 2025, may curb sustained euro gains despite current US dollar weakness. The EUR/USD exchange rate holds a mild bullish tone as expectations of a Fed rate cut and steady ECB policy provide modest support for the euro.
GBP/USD Steadies as Traders Await Key Guidance
The GBP/USD pair started the week on a quiet note, trading near 1.3330[18] in Monday’s early Asian session. Despite this subdued movement, the pair remains close to last week’s multi-week peak. Traders await a clear break above the 100-day SMA around 1.3365–1.3370[19] before increasing bullish bets. This lack of momentum shows caution ahead of significant US monetary policy signals later in the week.
Market reports[20] indicate that the US dollar remains pressured near its lowest point since late October, as markets expect the Fed to cut interest rates again at the next meeting. Recent softer US economic data[21], including weaker consumer spending and slower labour-market growth, has strengthened this dovish outlook. However, traders hesitate to increase dollar selling until the Fed’s updated projections and Chair Powell’s[22] comments clarify the easing pace. This uncertainty is limiting upward momentum for the pair in the short term.
Market commentators[23] note sterling gains some support amid reduced UK fiscal uncertainty after the government confirmed a £26 billion annual tax hike to stabilise public finances. This step has eased worries of premature Bank of England (BoE) rate cuts and helped boost GBP sentiment. The fiscal clarity, combined with broad US dollar weakness, maintains a short-term upside bias for the pair.
Analysts[24] suggest medium-term risks persist. A rise in US yields, driven by stronger data or a less-dovish Fed, could boost US dollar demand and limit sterling gains. For now, dips in the pair are expected to attract buying interest. However, the pair’s ability to hold above the 100-day SMA will be crucial in deciding if the recent uptrend continues. The GBP/USD exchange rate maintains a cautiously bullish tone as sterling finds support from UK fiscal clarity, though upside remains capped ahead of key Fed signals.
NZD/USD Supported by Trade Data Yet Vulnerable
The NZD/USD pair found modest support, trading near 0.5784[25] in Monday's early Asian trade, as buyers stepped in after China’s latest trade figures. Despite this initial rise, the wider sentiment towards the New Zealand dollar[26] remains cautious, with the currency struggling to maintain momentum against the US dollar. China’s November trade[27] surplus improved, fuelled by stronger export growth, benefiting the kiwi due to close trade ties. However, the FX market reaction has been muted, indicating external demand alone cannot shift the pair’s medium-term trend.
Market reports[28] indicate price action remains tight as traders focus on this week’s Fed policy decision, which now drives pair positioning. Most market participants expect a 25-basis-point cut, potentially the third in a row. Normally, this outcome would weigh on the US dollar, but expectations of a “hawkish cut” from Chair Jerome Powell[29] could limit losses. Powell’s emphasis on caution regarding future easing may soften downside pressure on the dollar and restrict further gains in the kiwi.
Analysts[30] suggest the pair will remain sensitive to shifts in US rate expectations in the near term, especially as recent economic data soften. Weakening consumer demand and easing labour market signs strengthen arguments for further Fed easing[31], but the central bank’s message will be crucial. Markets’ aggressive rate-cut outlook depends on Fed communication; any shift towards slower easing could restore US dollar strength.
Market watchers[32] note the pair stays above first support around 0.5750, yet upward momentum is still fragile. Short-term moves may allow a gentle recovery. However, medium-term risks remain if US policy proves less supportive than expected, potentially exposing the pair to fresh downward pressure. Despite a brief lift from improved Chinese trade data, the NZD/USD exchange rate remains fragile as traders await the Fed’s potentially hawkish rate cut.
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