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The Canadian Dollar (CAD) remained subdued against the US Dollar on Thursday, struggling to gain traction despite a modestly better-than-expected Manufacturing PMI reading. While the data provided a brief respite from the recent bearish trend, the Loonie remains vulnerable to further downside pressure amidst a broadly stronger US Dollar.
The December Canadian Manufacturing PMI reading came in at 52.2, exceeding market expectations of a decline. However, this positive data point failed to ignite a significant rally in the battered Loonie. The currency has been under considerable pressure in recent months, losing nearly eight percent against the US Dollar in the fourth quarter of 2024.
The subdued reaction to the PMI data highlights the prevailing bearish sentiment surrounding the Canadian Dollar. Market participants remain cautious, with trading volumes remaining thin following the New Year’s holiday.
The US Dollar continues to find support from a combination of factors, including a resilient US economy and expectations of continued monetary tightening. While US Initial Jobless Claims data for the week ended December 27 came in below expectations, further insights into the US economic outlook are expected from the release of the ISM Manufacturing PMI on Friday. A stronger-than-expected reading could further bolster the US Dollar and weigh on the Loonie.
From a technical perspective, the USD/CAD pair remains firmly entrenched in a bearish trend, trading near multi-year highs. A sustained break above this level could exacerbate the downside pressure on the Loonie. However, a failure to push higher could provide an opportunity for Loonie bulls to regain some ground, potentially driving the USD/CAD pair back towards the 50-day Exponential Moving Average.
