The USD/CAD pair trades sideways around 1.4400 in Tuesday’s North American session. The Loonie pair consolidates as it follows the footprints of the US Dollar (USD), which is grappled with volatility contraction in a thin volume trading day due to the holiday-shortened week.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades lackluster above 108.00.

The outlook of the Greenback remains firm as the Federal Reserve (Fed) indicated that it would follow a more measured approach to further policy-easing. In the latest Fed’s dot plot, policymakers collectively forecasted a target for the federal fund rate at 3.9% by the end of 2025, suggesting more than one interest rate cut from their current levels.

According to the CME FedWatch tool, traders fully anticipate that the Fed will leave interest rates unchanged in January at 4.25%- 4.50%.Meanwhile, the Canadian Dollar (CAD) remains weak across the board amid the wide policy divergence of the Bank of Canada (BoC) compared to other central banks. The BoC has already reduced its key borrowing rates by 175 basis points (bps) this year. However, it has guided a gradual policy easing approach, as officials advise patience to see the full effects of past cuts.

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