The USD/CAD pair trades in a subdued manner above the key support of 1.4400 in Thursday’s North American session. The Loonie pair is broadly sideways despite the US Dollar (USD) faces a sharp selling pressure after the release of the weak United States (US) Q4 Gross Domestic Product (GDP) data and lower Initial Jobless Claims for the week ending January 24, suggesting a significant weakness in the Canadian Dollar (CAD).

The US Bureau of Economic Analysis (BEA) has reported that the economy expanded at an annualized rate of 2.3%, slower than estimates of 2.6% and the 2.6% growth seen in the third quarter of 2024.

A slower pace in economic expansion is unlikely to boost the Federal Reserve (Fed) significantly as market participants expect US President Donald Trump’s economic policies, such as immigration controls, higher tariffs, and lower taxes, will be pro-growth and inflationary for the economy. A stubborn inflation outlook and strong growth prospects are unlikely to force the Fed to revert to the expansionary policy stance that it followed in the second half of 2024.

On Wednesday, the Fed announced a pause in the policy-easing cycle and left interest rates unchanged at 4.25%- 4.50%. Fed Chair Jerome Powell said the committee is very much in the “mode of waiting “to see what “policies are enacted” and how they will impact the economy.

Meanwhile, the Canadian Dollar (CAD) underperforms. Bank of Canada (BoC) Governor Tiff Macklem expressed concerns about the economic outlook due to the likely US tariffs in the monetary policy announcement on Wednesday, in which the BoC cut interest rates by 25 basis points (bps) to 3%.

"A long-lasting and broad-based trade conflict would badly hurt economic activity in Canada," Macklem said.

The BoC also reduced its growth forecasts for the current year and 2026 to 1.8%, without accounting the impact of likely US tariffs.

More By This Author: