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• USD/CAD edges lower amid thin trading volumes ahead of the New Year holiday.
• The US Dollar may appreciate due to the rising hawkish outlook for the Fed’s interest rates next year.
• The commodity-linked CAD gains ground amid improved crude Oil prices.

USD/CAD breaks its three-day winning streak, trading around 1.4400 during the European hours on Monday. The USD/CAD pair loses ground as US Dollar (USD) holds losses amid thin trading volumes ahead of the New Year holiday.

Markets continue to process the US Federal Reserve’s (Fed) hawkish stance, which could provide support for the US Dollar and the USD/CAD pair. The Fed reduced its benchmark interest rate by 25 basis points at the December meeting, the latest Dot Plot projections signal only two rate cuts in 2025, reinforcing cautious sentiment.

Fed Chair Jerome Powell said earlier this month that Fed officials "are going to be cautious about further cuts" after an as-expected quarter-point rate reduction. The Fed’s hawkish message is likely to support the US Dollar (USD) and act as a tailwind for the USD/CAD pair in the near term.

Traders broadly anticipate that the incoming administration of President-elect Donald Trump will implement tax cuts, tariffs, and deregulation, measures expected to fuel inflation. This could prompt the US central bank to adjust its outlook for the upcoming year.

Additionally, the commodity-linked Canadian Dollar (CAD) receives support from improved crude Oil prices, given Canada is the largest Oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price continues to gain ground for the second successive day, trading around $70.20 per barrel at the time of writing.

However, the potential rise in crude Oil prices might be limited as the market shifts its attention to the 2025 demand outlook. Projections of an oversupplied market next year could hinder the Organization of the Petroleum Exporting Countries and its allies' (OPEC+) efforts to resume idled production. Furthermore, uncertainties surrounding future demand from China, the world’s largest Oil importer, could add additional downward pressure on crude Oil prices.

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