Forex News
- USD/CAD trades near five-month lows as holiday-thinned markets limit volatility.
- The Canadian Dollar finds support from a widening policy divergence between the BoC and the Fed.
- Markets see the BoC holding rates through 2026, while the Fed is expected to ease gradually.
The Canadian Dollar (CAD) holds modest gains against the US Dollar (USD) on Wednesday, even as the Greenback trades firm amid limited movement as markets drift into holiday mode. At the time of writing, USD/CAD is trading around 1.3675, hovering near its lowest level since July 25.
Gross Domestic Product (GDP) data released on Tuesday did little to shift sentiment around USD/CAD. Canada’s economy contracted by 0.3% MoM in October, matching forecasts and reversing a 0.2% gain in the prior month. Meanwhile, the preliminary estimate of third-quarter GDP showed the US economy grew at a strong annualised pace of 4.3%, beating both the prior estimate of 3.8% and the market expectation of 3.3%.
The Loonie remains underpinned by a widening policy divergence between the Bank of Canada (BoC) and the Federal Reserve (Fed). The BoC kept its policy rate unchanged at 2.25% at its December meeting and signalled comfort with its current policy stance, saying current settings are appropriate to support the economy while keeping inflation close to the 2% target.
Markets have largely interpreted the decision as marking the end of the BoC’s easing cycle, following a cumulative 100 basis points (bps) of rate cuts since the beginning of the year. In its latest meeting minutes, Governing Council members acknowledged that uncertainty remains elevated and discussed whether the next policy move would be a hike or a cut. While officials agreed that the current policy rate is “about right” for now, they stressed that the timing and direction of the next adjustment remain difficult to predict.
That said, the base-case view is for the BoC to keep the policy rate around 2.25% through most of next year, with some upside risk that the next move could be a hike in the second half of 2026.
In contrast, the Fed is seen moving along a more gradual easing path. Markets expect further monetary policy easing next year after the Fed delivered a total of 75 bps of rate cuts this year. However, policymakers remain divided on the need for additional cuts, citing differing views on inflation and labour market conditions.
However, markets widely expect the Fed to hold rates steady in January, with CME FedWatch pricing just a 13% chance of a cut, while still anticipating two rate cuts later in the year.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
- Gold eases from record highs as thin holiday liquidity triggers mild profit-taking.
- Safe-haven demand, Fed easing expectations and a softer US Dollar continue to underpin the broader bullish bias.
- Technically, a bearish RSI divergence warns of near-term consolidation, though the uptrend remains intact.
Gold (XAU/USD) trades on the back foot on Wednesday after surging to a fresh all-time high near $4,526 earlier in the day. Volatility picked up amid thin holiday liquidity ahead of Christmas, encouraging mild profit-taking at elevated levels. At the time of writing, XAU/USD trades around $4,470, up nearly 3% this week.
Bullion’s historic rally this year has been nothing short of remarkable, with prices up more than 70% year to date, putting Gold on track for its strongest annual performance since 1979. The rally has been driven by strong safe-haven demand amid persistent geopolitical risks and economic uncertainties, as well as robust institutional and investment flows.
Another major driver behind Gold’s historic run has been broad weakness in the US Dollar (USD), driven by US President Donald Trump’s protectionist trade rhetoric and easing monetary policy by the Federal Reserve (Fed).
The Fed delivered a cumulative 75 basis points (bps) of rate cuts in 2025. Markets are also pricing in two additional rate cuts next year. This environment has continued to support demand for the precious metal as lower interest rates reduce the opportunity cost of holding non-yielding assets such as Gold.
Looking ahead, Gold may consolidate in the near term, as a lack of fresh market catalysts and further profit-taking ahead of the year-end could exert some downward pressure on prices. That said, the broader uptrend remains firmly intact, suggesting the rally is likely to continue into 2026.
Market movers: Fed outlook and geopolitics keep Gold supported
- Markets digested the final batch of key economic data ahead of the holiday period. Initial Jobless Claims fell to 214K from 224K in the previous week, coming in below the 223K market forecast. Meanwhile, Continuing Jobless Claims rose to 1.923 million, up from 1.885 million in the prior week, while the four-week average of Initial Claims edged down to 216.75K from 217.5K.
- On Tuesday, the US Bureau of Economic Analysis released the preliminary estimate of third-quarter Gross Domestic Product (GDP), which had been delayed by the recent government shutdown. The report showed the US economy expanded at an annualized pace of 4.3% in Q3, beating both the prior estimate of 3.8% and the market expectation of 3.3%.
- The upbeat GDP figures contrasted with softer US data elsewhere. Durable Goods Orders fell 2.2% in October, while Industrial Production slipped 0.1% month-on-month in October before rebounding 0.2% in November. Meanwhile, Conference Board Consumer Confidence dropped to 89.1 in December, from an upwardly revised 92.9 in November, keeping the US Dollar on the back foot.
- The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 97.96, hovering above its lowest level since October 3.
- On the monetary policy front, markets broadly expect the Fed to keep rates unchanged at its January meeting. Chair Jerome Powell said at the December policy meeting that the Fed is “well positioned to wait and see how the economy evolves.” The CME FedWatch Tool shows just a 13% probability of a rate cut in January. Still, investors expect the central bank to return to easing later in the year, amid signs of cooling inflation and a weakening labour market.
- Geopolitical tensions remain elevated, with the ongoing Russia-Ukraine conflict, persistent instability in the Middle East, and rising tensions between the United States and Venezuela continuing to weigh on market sentiment.
Technical analysis: Bearish RSI divergence raises correction risk
On the daily chart, XAU/USD is navigating uncharted territory, though risks of a mild pullback are starting to build. Momentum indicators suggest the rally is becoming overstretched, with the Relative Strength Index (RSI) hovering in overbought territory and showing early signs of fatigue, while a bearish divergence is beginning to take shape.
The broader bullish structure remains firmly intact, as prices continue to trade well above key moving averages. On the downside, the previous all-time high near $4,381 could act as the first line of defence, followed by the 9-day Simple Moving Average (SMA) around $4,372.
A decisive break below this short-term average could expose the 50-day SMA near $4,167, where buyers are likely to re-emerge.
On the upside, the $4,500 psychological level stands as an immediate resistance, ahead of a potential retest of the fresh all-time high at $4,526. A sustained break above this zone could open the door for further gains toward the $4,600 handle.
Meanwhile, the Average Directional Index (ADX) is rising and sits above the 30 mark, signalling that the underlying trend strength remains strong, even as momentum cools in the near term.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
- GBP/USD edges lower as the US Dollar finds mild support in holiday-thinned trade.
- Fed easing expectations into 2026 keep the broader US Dollar bias soft.
- BoE’s measured approach to easing in 2026 supports Sterling, as officials push back against expectations of aggressive cuts.
The British Pound (GBP) softens against the US Dollar (USD) on Wednesday, with the Greenback finding mild support amid reduced liquidity during the shortened US holiday session. At the time of writing, GBP/USD trades around 1.3500, easing slightly after briefly touching an intraday high near 1.3534, its strongest level since September 19.
Markets showed a muted response to the latest weekly US labor market data, which offered mixed signals. Initial Jobless Claims fell to 214K from 224K in the previous week, undershooting the 223K market forecast. Meanwhile, Continuing Jobless Claims climbed to 1.923 million from 1.885 million, while the four-week average of Initial Claims edged down to 216.75K from 217.5K.
Despite a short-term bounce, the US Dollar remains under sustained pressure as expectations for further monetary policy easing by the Federal Reserve (Fed) into 2026 continue to weigh on the Greenback, keeping GBP/USD well supported. The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, trades around 97.95, hovering just above its lowest level since October 3.
Markets broadly expect the Fed to keep interest rates unchanged at its January meeting, with the CME FedWatch Tool showing only a 13% probability of a rate cut. Speaking after the December policy decision, Fed Chair Jerome Powell said the central bank is “well positioned to wait and see how the economy evolves.” Still, investors anticipate a return to easing later in the year, with markets currently pricing in two rate cuts in 2026.
On the UK side, the monetary policy outlook remains broadly supportive for Sterling. The Bank of England (BoE) is expected to proceed cautiously in 2026 after signalling at its December meeting that, while interest rates could move lower over time, future policy decisions are becoming a “closer call,” tempering expectations for an aggressive easing cycle.
According to forecasts from UBS, the BoE is likely to deliver two additional 25-basis-point rate cuts in 2026, potentially in the first half of the year, which would take Bank Rate toward around 3.25%. UBS adds that lingering services inflation and still-elevated wage growth could slow the pace of easing.
- Silver advances for a fourth consecutive day, supported by persistent expectations of Fed monetary easing
- Medium-term Fed rate cut bets outweigh stronger-than-expected US macroeconomic data
- The safe-haven-friendly backdrop continues to underpin precious metals
Silver (XAG/USD) trades around $72.05 on Wednesday at the time of writing, up 0.70% on the day. The white metal extends its bullish momentum for a fourth straight day and reached a fresh all-time high at $72.71 earlier in the day, highlighting sustained investor appetite for precious metals.
Expectations of an accommodative monetary policy from the Federal Reserve (Fed) remain a key driver. According to the CME FedWatch tool, markets see more than a 70% chance of cumulative interest rate cuts of at least 50 basis points by 2026. These expectations contrast with the Fed’s official projections, as the latest dot plot points to the Federal Funds Rate near 3.4% by the end of 2026, suggesting limited room for additional cuts.
In this context, the prospect of sustainably lower interest rates continues to favor non-yielding assets such as Silver. In theory, falling yields reduce the opportunity cost of holding precious metals, enhancing their appeal among institutional investors and speculative flows.
Recent US macroeconomic data have not derailed this trend. Third-quarter Gross Domestic Product (GDP) in the United States (US) showed robust growth of 4.3% YoY, well above market expectations. Despite this positive surprise, investors remain focused on the medium-term outlook, centered on gradually easing inflation and signals of future monetary accommodation.
Silver is also benefiting from a broader safe-haven environment. Persistent geopolitical uncertainties, ongoing market volatility and structural weakness in the US Dollar (USD) continue to support demand for precious metals. The recent consolidation in Gold below record highs has not dampened enthusiasm for Silver, which is benefiting from a catch-up effect and a strong speculative component.
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
- WTI holds near two-week highs as holiday-thinned trade limits volatility.
- US-Venezuela tensions provide modest support to crude prices.
- Technical indicators show improving momentum, though downside risks remain below the $60 level.
West Texas Intermediate (WTI) Crude Oil trades little changed on Wednesday as markets slip into holiday mode, with prices hovering near two-week highs amid thin liquidity. The US benchmark remains underpinned by rising tensions between the United States and Venezuela, which have added a modest geopolitical risk premium. At the time of writing, WTI is trading around $58.33 per barrel, pausing after a three-day advance.
From a technical perspective, the daily chart points to a modest recovery in WTI, with prices reclaiming the 21-day Simple Moving Average (SMA) near $58.04. Buyers re-emerged last week after prices revisited the psychological $55 level, limiting further downside following the test of year-to-date lows.
On the upside, overhead moving averages could cap gains, with the 50-day SMA near $58.58 acting as immediate resistance. The next hurdle is seen around the $60 psychological level, where the 100-day SMA currently aligns near $60.71. Unless a decisive break above the $60 mark materialises, downside risks are likely to persist.
On the downside, failure to sustain a move above the 21-day SMA could expose initial support near $56.50, followed by the $55.00 round figure. A break below this zone would reopen downside risks toward multi-year lows.
Momentum indicators are starting to turn more constructive. The Relative Strength Index (RSI) hovers near the 50 mark after rebounding from near-oversold levels. The Moving Average Convergence Divergence (MACD) extends above the Signal line and stands in positive territory, with a modestly widening positive histogram hinting at improving bullish momentum.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- Initial Jobless Claims in the US fell by 10,000 in the week ending December 20.
- The US Dollar Index holds steady near 98.00 in the American session.
There were 214,000 Initial Jobless Claims in the week ending December 20, a decrease of 10,000 from the previous week's unrevised level, the US Department of Labor (DOL) reported on Wednesday. This reading came in better than the market expectation of 223,000.
In this period, the 4-week moving average declined by 750 to 216,750.
"The advance number for seasonally adjusted insured unemployment during the week ending December 13 was 1,923,000, an increase of 38,000 from the previous week's revised level," the DOL noted in its press release.
Market reaction
The US Dollar Index showed no immediate reaction to this report and was last seen posting small daily gains at 97.92.
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