USD/CAD rises above 1.4400 as US Dollar Index rallies toward two-year highs

• USD/CAD appreciates as US Dollar Index advances toward two-year highs ahead of labor market figures.
• The US NFP is expected to decrease to 160K in December, down from the previous 227K.
• Statistics Canada could report a Net Change in Employment of 25,000 for December, as compared to November's figure of 50,500.

USD/CAD continues its winning streak for the fourth successive session, trading around 1.4420 during the Asian hours on Friday. The USD/CAD pair appreciates as the US Dollar (USD) receives support from hawkish Federal Open Market Committee (FOMC) Meeting Minutes and uncertainties surrounding tariff plans proposed by the incoming Trump administration.

The US Dollar Index (DXY), which measures the USD's performance against six key currencies, trades near 109.30 at the time of writing, just below its two-year high of 109.56 reached on January 2. The Greenback gains strength as long-term US bond yields continue to rise due to significant supply. As of now, the 10-year yield is at 4.69%, while the 30-year yield stands at 4.93%.

Kansas Fed President Jeffrey Schmid made headlines on Thursday, emphasizing the need to reduce the Fed's balance sheet, suggesting that interest rate policy is approaching its long-term equilibrium. He noted that any future rate cuts should be gradual and guided by economic data.

Additionally, Federal Reserve Board of Governors member Michelle Bowman added her voice to a chorus of Fed speakers this week as policymakers work double-duty to try and smooth over market reactions to a much tighter pace of rate cuts in 2025 than many market participants had previously anticipated.

Canadian Prime Minister Justin Trudeau said Thursday that he would respond if Trump does impose tariffs. Trudeau further stated that President-elect Donald Trump's threat of slapping a 25% tariff on Canadian products would ultimately hurt American consumers and businesses. Canada, Mexico, and China are the US's biggest trade partners.

Meanwhile, higher crude Oil prices may help limit the Canadian Dollar's (CAD) losses, as Canada remains the largest Oil exporter to the United States (US). At the time of writing, West Texas Intermediate (WTI) Oil price holds steady after recent gains, trading around $73.70 per barrel.

Crude Oil prices are supported by expectations of increased heating fuel consumption due to prolonged colder temperatures across the Northern Hemisphere. Additionally, signs of strong demand are evident, highlighted by a report indicating a seventh consecutive weekly decline in US crude stockpiles.

On the data front, traders are now focused on US labor market figures, particularly Nonfarm Payrolls (NFP), for clues on the Fed's future policy direction. In Canada, attention will turn to December's Net Change in Employment and Unemployment Rate for further economic insights.