The Canadian Dollar (CAD) has stalled after a brief recovery, struggling to gain significant bullish momentum against the US Dollar (USD). On Tuesday, CAD’s movement remained largely sideways, hovering at familiar levels as it continued to face challenges following a sharp decline in late 2024.
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Weak PMI Figures Weigh on CAD Sentiment
Despite a brief recovery after reaching multi-year lows, the Loonie is facing resistance. Traders who were hoping for stronger economic data to fuel further gains were disappointed by Canada’s Ivey Purchasing Managers Index (PMI) for December, which dropped to a 12-month low of 44.3. This marks a significant contraction in business activity expectations compared to November’s 49.7. While the seasonally-adjusted PMI rose slightly to 54.7 from 52.3, it still failed to meet the forecast of 55.4, highlighting a persistent weakness in the Canadian economy.
Muted Impact of Canadian Trade Data
Canada’s trade figures for November showed modest gains, with both exports and imports rising. However, the data lacked sufficient impact to drive CAD movement. The figures were considered too dated and low-impact to significantly alter market sentiment or trigger notable CAD flows.
US Economic Data Takes Center Stage
As CAD traders awaited more meaningful signals, the focus shifted to US economic data. On Tuesday, the ISM Services PMI for December surged to 54.1, outperforming expectations of 53.3 and the previous 52.1. This uptick in US business activity has rekindled concerns about the Federal Reserve’s stance on interest rates in 2025, raising expectations that rate cuts may be delayed, which has dampened risk appetite across markets.
Looking Ahead: Canadian Dollar Price Forecast
USD/CAD saw significant movement in December, briefly surpassing the 1.4400 mark before settling into a sideways range just below that level. Despite a recent attempt at recovery, the CAD has struggled to break free from its downward trend, which saw the Canadian Dollar reach its weakest levels against the US Dollar since the pandemic.
As of now, the 1.4300 level has firmed up as a key technical floor for CAD. If momentum can push prices below this level, the 50-day Exponential Moving Average (EMA) is likely to act as the next immediate resistance, with prices expected to hover around 1.4200.
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Upcoming Market Events to Watch
Traders will be closely watching Friday’s Nonfarm Payrolls (NFP) report for any additional clues regarding the US economy and the potential for future rate cuts by the Federal Reserve. The NFP data could provide the next catalyst for movement in both the US Dollar and Canadian Dollar as investors adjust their expectations for 2025.
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