The USD/CAD currency pair, also known as the “loonie”, is a major pair representing the value of the US dollar against the Canadian dollar. With Canada being a major trading partner and neighbor of the United States, developments between the two economies can significantly impact the USD/CAD exchange rate.
As we head into 2024, forecasting where the loonie is headed against the greenback requires analyzing key economic factors, monetary policy divergence, political landscapes, and technical indicators.
This comprehensive USD/CAD forecast for 2024 will explore all the major dynamics that could impact the currency pair over the next year.
Outline of Factors to Consider for USD/CAD Forecast 2024
Here is an overview of the key factors explored in this USD/CAD forecast for 2024:
Economic Growth Prospects
- US Economy Outlook 2024
- Canada Economy Outlook 2024
- GDP Growth Comparisons
- Jobs Reports
Monetary Policy
- US Federal Reserve Rate Hike Path
- Bank of Canada Rate Hike Path
- Quantitative Tightening Plans
- Impacts on USD and CAD
Political Landscapes
- US Administration & Policies
- Canada Administration & Policies
- Geopolitical Risks
Commodities Markets
- Oil Price Outlook
- Other Commodities Impact on CAD
Technical Levels
- Long-term Trends and Support/Resistance
- Moving Averages
- Overbought/Oversold Conditions
Sentiment & Risk Appetite
- Market Risk Sentiment
- Safe Haven Appeal of USD
Economic Growth Prospects for USD/CAD in 2024
Comparative economic growth and health is one of the most important factors driving the USD/CAD exchange rate. If the US economy significantly outperforms Canada, the US dollar will likely strengthen against the Canadian dollar. However, if Canada’s economy shows more robust growth, the loonie could gain ground.
US Economy Outlook 2024
Heading into 2024, analysts expect the pace of US economic growth to slow substantially compared to 2021-2022 as the effects of pandemic stimulus measures fade.
- GDP Growth: After expanding 5.7% in 2021, US GDP growth is projected to slow to just 1.2% in 2023 and 1.3% in 2024 according to FocusEconomics panelists. This slowdown reflects tightening monetary policy, high inflation, and other headwinds.
- Employment: The US job market remains strong with unemployment at just 3.7% as of October 2022. However, job growth is slowing with employers adding just 261,000 jobs in October, down from 548,000 a year earlier. Slowing employment growth may continue in 2024.
- Inflation: High inflation reaching 9.1% in June 2022 will dampen consumer spending power. The Fed aims to cool inflation to its 2% target but this could take years.services
Overall, positive but slowing growth for the US economy points to potential USD weakness, but the Fed’s aggressive rate hikes could support the greenback.
Canada Economic Outlook 2024
Analysts also expect slower but still positive growth for Canada in 2024:
- GDP Growth: Decelerating from estimated 3.3% growth in 2022, Canada’s GDP is forecast to expand 2.0% in 2023 and 1.8% in 2024 per FocusEconomics. Domestic demand may soften.
- Employment: Canada’s robust labor market supports growth, with unemployment at just 5.2% in October 2022. But job growth is slowing, with just 0.8% year-over-year gain.
- Inflation: Like the US, high inflation is a headwind for Canada. Inflation hit 8.1% in June 2022. The BoC aims to return inflation to its 2% target but this could take years.
Moderating growth prospects for Canada point to neutral or slight CAD weakness.
GDP Growth Comparison
| Year | US GDP Growth Forecast | Canada GDP Growth Forecast |
|---|---|---|
| 2023 | 1.2% | 2.0% |
| 2024 | 1.3% | 1.8% |
In summary, both the US and Canadian economies are expected to grow at a slower pace in 2023-2024 compared to the robust post-pandemic recovery. However, forecasts point to slightly stronger growth in Canada. This could lend modest support to the CAD against the USD.
Diverging Monetary Policy Outlook for USD/CAD in 2024
With inflation running hot in both nations, the policy response by the Fed and Bank of Canada will significantly influence USD/CAD. The currency of whichever central bank takes a more hawkish tightening approach is likely to strengthen.
US Federal Reserve Rate Hike Outlook
To tame inflation, the Fed has been aggressively hiking its benchmark interest rate, taking it from near-zero in March 2022 to a 3.75-4% target range as of November 2022.
- The Fed is projected to keep rates elevated through 2023 and 2024 to cool the economy and curb price increases.
- Futures markets are pricing in a terminal rate around 5% in early 2023, followed by rate cuts in late 2023.
- Reduced liquidity from quantitative tightening will also tighten monetary conditions.
- Overall, hawkish Fed policy is likely to support USD. But if markets expect rate cuts, USD could weaken.
Bank of Canada Rate Hike Outlook
The Bank of Canada has also been on a tightening cycle, taking its policy rate from 0.25% to 3.75% as of October 2022 to combat high inflation.
- Markets expect the BoC to raise rates further to between 4% and 4.5% by early 2023 before plateauing.
- Quantitative tightening is also reducing asset purchases and the BoC’s balance sheet.
- With both central banks tightening aggressively, the BoC maintains slightly more room to hike rates than the Fed.
- If the BoC stays hawkish relative to the Fed, it could boost CAD.
Monetary Policy Impact on USD/CAD
While both central banks are normalizing policy, analysts see the Fed likely being marginally more hawkish than the BoC in 2023-24. This could lend some upside to USD/CAD. However, the BoC also has room to surprise with larger hikes, which could weaken the pair.
Political Developments Impacting USD/CAD in 2024
Domestic politics and geopolitical issues can also influence currency markets. USD and CAD may strengthen or weaken depending on political developments in 2024.
US Administration & Policies
- With President Biden’s term through January 2025, divided government limits major policy changes. Modest fiscal stimulus is possible.
- Mid-term election results leading to Republican control of Congress could increase political tensions and gridlock.
- Overall, limited political risks seen from US administration, providing neutral influence on USD.
Canada Administration & Policies
- Prime Minister Trudeau leads a minority Liberal government dependent on other parties. This reduces major policy shifts.
- Canada faces some domestic political tensions but limited major risks. General election possible in 2024.
- No major CAD-impacting political risks anticipated barring unforeseen coalition collapses.
Geopolitical Risks
- Russia’s war in Ukraine has elevated global uncertainty. Risks of escalation could spur safe-haven demand for USD.
- Other geopolitical issues like China-Taiwan tensions could also boost USD safety flows. But direct impact on USD/CAD seen as limited.
Commodities Market Influence on USD/CAD in 2024
As a resource-linked economy, Canada’s economic health and currency are tied to commodities, especially crude oil. The path of oil and other commodity prices will sway CAD.
Oil Price Outlook
- Oil prices surged in 2022 due to the Russia-Ukraine war but may moderate in 2023-2024 as growth slows and supplies increase.
- Investment bank Morgan Stanley forecasts Brent falling from ~$100/barrel to $90 by end-2023 and $85 in 2024 on recession risks.
- Weaker oil is negative for CAD as Canada is a major oil exporter. But prices over $80 still support loonie strength.
Other Commodities
Beyond crude oil, prices for metals, agricultural goods, and other commodities important to Canada like lumber and natural gas are forecast to come off 2022 highs but remain historically strong in 2023-2024.
- Strong commodity exports should provide overall support for CAD against USD.
Technical USD/CAD Price Levels for 2024
Analyzing the long-term trend, support and resistance levels, moving averages, and overbought/oversold indicators on USD/CAD price charts can identify technical trading signals.
Long-term Trend
- After trading in a long-term downtrend since 2002, USD/CAD reversed higher in 2021-2022. This suggests a technical upside bias.
- But the pair remains below its early 2020 pre-pandemic highs around 1.46. This could act as resistance.
Support and Resistance Zones
- Near-term support is around 1.33-1.34 and 1.30. Below that, stronger support at 1.25-1.28 range.
- On the upside, resistance around 1.38-1.40 range before the key 1.45-1.46 hurdle.
Moving Averages
- The 50-day SMA is crossing above the 200-day, pointing to an upside technical bias. The 100-day SMA is also rising.
- Sustained trading above these MAs would give a bullish technical signal for the pair.
Overbought/Oversold Conditions
- The 14-day RSI recently rebounded from oversold territory below 30, indicating the pair could see further upside after becoming technically oversold.
Sentiment and Risk Appetite Effects on USD/CAD
Currency markets are also swayed by overall investor sentiment and risk appetite. In periods of uncertainty, safe havens like USD often strengthen.
Market Risk Sentiment
- Heading into 2023-2024, sentiment is dominated by global recession worries which could spur demand for safe-haven USD.
- If growth slows substantially, risk aversion would rise – supporting USD/CAD. But resilience could favor CAD.
Safe Haven Appeal of USD
- With high inflation and growth headwinds, USD should maintain its safe haven appeal in 2023-2024.
- Greater investor uncertainty typically benefits USD over risk-linked assets like CAD.
- However, CAD could strengthen if the global economy avoids recession.
USD/CAD Forecast and Price Target for 2024
Taking all these factors into account, here is a potential outlook for USD/CAD in 2024:
- Slower but positive growth favors CAD, but not by a wide margin vs USD.
- Hawkish Fed policy should mostly offset BoC tightening, leaving a neutral/slight USD positive.
- Politically, status quo is expected; geopolitics favors USD but direct CAD impact is limited.
- Weaker but still strong oil and commodities are CAD supportive.
- Technicals currently favor upside.
- Recession risks could boost safe-haven USD inflows.
This points to a potential neutral to modestly bullish outlook for USD/CAD in 2024, with the pair potentially trading in a range of 1.25 to 1.45.
FAQ About USD/CAD Forecast for 2024
Here are answers to some frequently asked questions about forecasting the USD/CAD currency pair in 2024:
What are the major factors that will impact USD/CAD in 2024?
The main factors expected to influence USD/CAD in 2024 are:
- Divergence in US and Canadian economic growth and monetary policy
- The outlook for oil and other commodity prices
- Market risk sentiment and safe-haven demand for USD
- Technical price levels and indicators
Will USD/CAD go up or down in 2024?
The USD/CAD forecast for 2024 is neutral to mildly bullish, with the pair potentially rising but remaining in a wide trading range. Key upside drivers include hawkish Fed policy, recession risks boosting USD, and technicals favoring the upside. Factors that could lead to declines include oil supporting CAD and global growth avoiding recession.
How high could USD/CAD go in 2024?
The upper bound of the potential 2024 trading range for USD/CAD looks to be around 1.45-1.46. This aligns with the pre-pandemic 2020 highs which could act as technical resistance. Only a severe global downturn would likely propel the pair significantly above 1.46 next year.
How low could USD/CAD fall in 2024?
The lower bound of the 2024 forecast range for USD/CAD is around the 1.25-1.28 zone which has provided solid technical support over the past two years. Only a major bullish catalyst like much stronger oil or hawkish shift by the BoC relative to the Fed would seem likely to push the pair below 1.25 in 2024 based on current fundamentals.
Will the BoC or Fed have a more hawkish policy in 2024?
Most analysts expect the Fed to retain a marginally more hawkish policy stance compared to the BoC in 2024. The Fed is seen taking its terminal rate slightly higher than the BoC’s peak next year. However, the BoC could also surprise with larger hikes, leading to a close policy stance between the two central banks next year.
Concluding Thoughts on USD/CAD Forecast for 2024
Predicting the path of a major currency pair like USD/CAD over a year in advance inherently involves uncertainty. However, analyzing the key economic, political, and technical factors driving the pair provides a framework for anticipating potential trends and trading ranges.
Heading into 2024, the loonie faces multiple countervailing forces against the US dollar. Still, the outlook appears neutral to moderately bullish for USD/CAD within a wide 1.25 to 1.45 trading range. The relative hawkishness of Fed policy, technical upside momentum, and safe-haven USD demand seem poised to outweigh the benefits of strong oil and commodity prices for CAD.
Yet substantial risks remain in both directions. The path of the global economy, inflation pressures, and central bank actions over the next year could significantly shape the ultimate trend for this key North American currency pair. Carefully weighing the fundamental and technical signals will be essential for forecasting where the USD/CAD price could travel in 2024.
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