The USD/CAD pair hovers near 1.3850, with attention on upcoming monetary policy announcements from the Bank of Canada (BoC) and the Federal Reserve (Fed). The BoC is likely to maintain interest rates at 2.25% due to robust employment data from September to November, following earlier layoffs.
The Fed is expected to reduce the Federal Funds Rate by 25 basis points to between 3.50%-3.75%, addressing a weak US labour market. The Fed’s policy will also include new guidance for 2026, with a 58% chance of further rate cuts by October 2026. The US Dollar Index trades 0.1% lower, indicating a slight decrease against other major currencies.
Technical Analysis Of USDCAD
The USD/CAD exchanges around 1.3850 during Wednesday’s European session. It remains below the 200-day Exponential Moving Average (EMA) at 1.3912, underscoring downward pressure. The 14-day Relative Strength Index (RSI) at 35 suggests limited upward momentum, with a barrier at the 200-day EMA. A rise above this could neutralise the bearish stance, while sustained pressure could lead towards the 1.3720 demand area.
The Fed’s monetary policy decisions, primarily interest rate changes, influence the USD’s strength, impacting global capital flows. The upcoming decision is expected on December 10, 2025, with a 3.75% consensus, slightly decreased from the previous 4%.
We see a clear divergence in central bank policy today, with the Bank of Canada expected to hold rates firm at 2.25% while the Federal Reserve is set to cut by 25 basis points. This policy split is driven by recent data, as Canada’s labor market added a surprisingly strong 60,000 jobs in November while the latest U.S. Non-Farm Payrolls came in at a disappointing 85,000. This fundamental setup strongly favors a weaker U.S. Dollar against the Canadian Dollar.
Given this outlook, we are considering buying put options on USD/CAD with expiries in late January 2026. A strike price around 1.3800 offers a way to profit if the pair breaks below its current consolidation near 1.3850. The primary target would be the key support level seen back on August 7 at 1.3720.
Risk And Strategy In Trading USDCAD
We must be cautious of immediate volatility around the policy announcements, as the Fed’s 25 basis point cut is already largely priced in by the market. A surprisingly less-dovish tone from the Fed could cause a brief spike upwards in USD/CAD. We would view any rally towards the 200-day moving average at 1.3912 as an opportunity to initiate or add to bearish positions.
Looking further out, the key will be the Fed’s guidance for 2026, as traders are pricing in at least two more cuts by October of that year. Historically, the start of a Fed easing cycle tends to create a multi-month trend of dollar weakness, similar to what we observed in the second half of 2019. Therefore, any strength in the USD/CAD pair in the coming days might be short-lived.
