USD/CAD edges higher to near 1.4400 as Fed policymakers signal fewer rate cuts next year

• USD/CAD appreciates as its upside potential is strengthened by the slightly hawkish sentiment surrounding the Fed's policy outlook.
• The US Consumer Confidence Index fell by 8.1 points in December, landing at 104.7.
• Canada's Gross Domestic Product expanded by 0.3% MoM in October, exceeding the forecasted 0.1% decline.

USD/CAD holds thin gains after three days of losses, trading around 1.4380 during the Asian hours on Tuesday. The upside potential for the USD/CAD pair is bolstered as Federal Reserve (Fed) policymakers signaled fewer interest rate cuts next year due to a slowdown in the disinflation process. However, soft US PCE data have tempered inflation concerns, presenting a mixed outlook for the economy.

On the data front, US Durable Goods Orders for November were weaker than anticipated, declining by 1.1% compared to the expected 0.4% drop. This follows an upward revision for October, which showed an increase of 0.8%, up from the previously reported 0.2%.

The US Consumer Confidence Index, published by the Conference Board, fell by 8.1 points in December, landing at 104.7. "The recent rebound in consumer confidence was not sustained in December as the Index dropped back to the middle of the range that has prevailed over the past two years," noted Dana M. Peterson, Chief Economist at The Conference Board.

US households expressed concerns about President-elect Trump's economic policies, with nearly half of respondents fearing that tariffs could drive up the cost of living. These concerns were compounded by the Federal Open Market Committee's (FOMC) recent projections, which indicated fewer rate cuts in 2025, reflecting caution amid persistent inflationary pressures. 

In Canada, Gross Domestic Product (GDP) rose by 0.3% month-over-month in October, exceeding the forecasted 0.1% decline. However, the Raw Material Price Index in Canada contracted by 0.5% in November, a sharp drop from the 4.0% increase recorded in October and well below the anticipated 0.6% rise.

Looking ahead, Canada's GDP is expected to have contracted by 0.1% month-over-month in November, marking the first monthly contraction of the year and aligning with the central bank's recent warnings and downwardly revised growth projections.