USD/CAD gains ground above 1.4050 amid US Dollar strength, lower crude oil prices

• USD/CAD strengthens to around 1.4070 in Tuesday's Asian session.
• Fed's Powell suggested the last reduction may be the last of 2025. 
• Lower crude oil prices undermine the commodity-linked Canadian Dollar. 

The USD/CAD pair gains ground to near 1.4070 during the Asian trading hours on Tuesday. The US Dollar (USD) strengthens against the Canadian Dollar (CAD) as traders dial back bets for further Federal Reserve (Fed) rate cuts. Traders will keep an eye on Canada's Merchandise Trade data and Fedspeak later on Tuesday. 

The Fed lowered the target for its key lending rate by 25 basis points (bps) at its October meeting last week, putting it in a range of 3.75% to 4.0%. During the press conference, Fed Chair Jerome Powell delivered hawkish comments, saying that the labor market was "less dynamic and somewhat softer" than earlier this year. 

Powell signaled that a further reduction in the policy rate at the December meeting is not a foregone conclusion. This, in turn, could lift the USD against the CAD in the near term. Traders now see only about a 70% chance of a cut in December, down from 93% a week ago, according to the CME FedWatch tool. 

Meanwhile, crude oil prices fall as concerns over a looming supply glut persisted, weighing on the commodity-linked Loonie and acting as a tailwind for the pair. It's worth noting that Canada is the largest oil exporter to the US, and lower crude oil prices tend to have a negative impact on the CAD value.

The Bank of Canada (BoC) cut its benchmark rate by 25 basis points (bps) to 2.25% last week, but Governor Tiff Macklem said he would be ready to respond if Canada's economic outlook changed materially. This decision was the second cut in a row, bringing the rate down to the lowest since July 2022. 

BoC's Macklem noted that the easing was designed to help the economy deal with the disruption from US tariffs while keeping inflation close to the 2% target. The BoC will monitor incoming data closely, and the next rate decision is scheduled for December 10, 2025. Economists expect that while rate cuts have paused for now, there could be more easing in the next year.