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• USD/CAD gains ground to around 1.4405 in Friday’s early Asian session. 
• The hawkish rate cut by the Fed supports the USD. 
• An unexpected downtick in the November Canadian CPI inflation reinforces expectations for more BoC modest rate cuts.

The USD/CAD pair gathers strength to near 1.4405 during the early Asian session on Friday, bolstered by the firmer Greenback broadly. Traders will keep an eye on Canadian October Retail Sales and US Core Personal Consumption Expenditures (PCE) Price Index data, which are due later on Friday. 

The US Federal Reserve lowered the federal funds rate by 25 basis points (bps), bringing its target range to 4.25% and 4.50%. The latest Summary of Economic Projections (SEP), or “dot plot”, indicated the US central bank's intention to reduce the number of interest rate cuts next year from four to just two quarter-percent reductions. This stance proved significantly more hawkish than market expectations, which boosts the US Dollar (USD) broadly.

On the other hand, a slowdown in Canadian Consumer Price Index (CPI) inflation in November fuelled the expectations that the Bank of Canada (BoC) will cut rates further in 2025, though the era of jumbo reductions may be over. This might weigh on the Canadian Dollar (CAD) and act as a tailwind for USD/CAD. 

“Overall, the November inflation report was mixed—while headline CPI eased to 1.9% year over year, core measures showed some stickiness. We continue to expect the Bank of Canada to trim policy rates by 25 basis points in January and shift toward a more gradual approach to cutting rates in 2025,” said Rachel Siu, head of Canadian fixed income strategy at BlackRock. 

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