The USD/CAD has reached a new high in several years, and the Canadian dollar is under pressure due to the rise in US bond yields and dovish comments from the Bank of Canada. The market is focused on the Canadian CPI data. NZD/USD fell to a two-year low, supported by the dovish stance of the New Zealand Federal Reserve and safe haven demand for the US dollar. The market is focusing on the US retail sales data to be released at 21:30 on December 17th and the Federal Reserve policy results this Thursday.

Note: All dates mentioned in this article are in Beijing time.

USD/CAD hits multi-year high, Canadian dollar under pressure focuses on inflation data

On Tuesday, December 17th, USDCAD continued its four-day uptrend during trading, reaching a new high in several years and currently trading around 1.4280. The US dollar/Canadian dollar was supported mainly due to the recovery of some of the losses from the previous two days by the rise of the US dollar index, which can be attributed to the increase in US bond yields.

The US dollar index, which measures the US dollar against six major currencies, currently hovers around 107.05. The yields of US two-year and 10-year treasury bond bonds are 4.26% and 4.41% respectively.

The market is waiting for the possible interest rate cut by the Federal Reserve this Thursday, and its focus will be on the Fed's guidance on the 2025 interest rate forecast. According to the CME Federal Reserve Watch tool, the market has almost fully priced the Fed's 25 basis point rate cut at its December meeting.

The Canadian dollar is facing multiple pressures, mainly influenced by dovish remarks from the Governor of the Bank of Canada, Tiff MacLehmann. McClelland stated on Monday that the Bank of Canada is preparing for a future filled with greater uncertainty and greater vulnerability to shocks. He added that the central bank will evaluate the necessity of further lowering interest rates in successive meetings, and if the economy develops as expected, monetary policy will adopt a more gradual approach.

In addition, political challenges within Canada may also put pressure on the Canadian dollar. According to CNN, after Canadian Finance Minister Chrystia Freeland announced her resignation from her cabinet position, Canadian Prime Minister Justin Trudeau faced increasing calls for her resignation.

Next, the market will closely monitor Canada's November CPI inflation data, which will be released on Tuesday, December 17th at 21:30. At the same time, the US November retail sales data will also be released, which will become an important observation focus for the market.

NZD falls to a two-year low, Federal Reserve decision may be key to trend

On Tuesday, December 17th, NZDUSD encountered new selling pressure around 0.5760 and continued its downward trend. The exchange rate has fallen to the 0.5755 zone in the past hour, approaching the lowest level since October 2022 hit on Monday.

The New Zealand dollar continues to perform weakly, mainly due to the dovish stance of the Reserve Bank of New Zealand and market expectations for greater policy easing by the Reserve Bank of New Zealand in the future. At the same time, the emergence of new buying demand for the US dollar also puts downward pressure on NZDUSD.

The market currently generally believes that the Federal Reserve will slow down its interest rate cut cycle next year (mainly due to increasing signs of stagnation in the process of inflation returning to its 2% target). In addition, the market speculates that the policies of US President elect Trump may lead to an increase in government borrowing, further boosting inflation expectations and supporting high US bond yields. Combined with geopolitical tensions in the Middle East and other regions, these factors collectively support the safe haven demand for the US dollar.

Next, the market will focus on the monthly retail sales data in the United States, which will be released on Tuesday, December 17th at 21:30, providing short-term trading opportunities for the market. However, the market focus will still be on the results of the Federal Reserve policy meeting scheduled to be announced this Thursday. The market will closely monitor policy statements and Federal Reserve Chairman Powell's speech to find clues about the future path of interest rate cuts. This will affect the short-term price trend of the US dollar and provide new directional momentum for NZD/USD.