USD/CAD gains above 1.4400 as US Dollar dominates on Fed's cautious policy outlook

• USD/CAD climbs above 1.4400 as the US Dollar refreshes two-year high.
• The Fed is expected to follow a moderate rate-cut cycle this year.
• Investors await the US ISM Manufacturing PMI data for December.

The USD/CAD pair rises to near 1.4420 in Thursday's European session. The Loonie pair gains as the US Dollar (USD) dominates its European and North American peers on expectations that the pace of interest rate cuts by the Federal Reserve (Fed) will be moderate this year than what had been seen in 2024.

The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, posts a fresh more-than-two-year high at 108.60.

Fed officials have guided fewer interest rate cuts for this year as they are confident about the United States (US) economic outlook. The latest dot plot showed that policymakers collectively see Federal Fund rates heading to 3.9% by 2025, suggesting there will be more than one interest rate cut this year.

For more interest rate cuts, investors will focus on a slew of US labor market-related economic indicators, which will be released next week. Those economic indicators will show the current status of labor demand by US employers.

But before that, the US Dollar will be guided by the ISM Manufacturing PMI data for December, which will be released on Friday. The PMI report is expected to show that the manufacturing activities tick lower 48.3 from the prior release of 48.4, suggesting a contraction at a slightly faster pace.

Meanwhile, the outlook of the Canadian Dollar (CAD) remains bearish as the Bank of Canada (BoC) is expected to continue easing the monetary policy further. BoC officials worry about growing risks of inflation undershooting the bank's target of 2%.