The Canadian Dollar is trading near Friday’s closing level versus the US Dollar, slightly below its fair value of 1.3798. Analysts predict short-term consolidation of USD losses, with the trend favouring CAD strength and resistance expected around 1.3850–1.3875 on moderate USD rebounds.
Short Term Indicators
Scotiabank strategists note the CAD is close to its Friday rate against the USD, trading just below its estimated fair value. This offers room for CAD strength to extend. They previously mentioned that a USD/CAD close below 1.3769 would suggest further USD losses towards 1.35/1.36, but the CAD barely missed sustaining that gain.
Short-term indicators suggest the USD may consolidate its recent losses, though the pattern points to limited USD gains. Resistance is anticipated in the 1.3850/75 zone during moderate USD rebounds. The FXStreet Insights Team curates observations and insights from both commercial and external analysts, alongside internal perspectives.
The Canadian Dollar is holding firm against the US Dollar, and we believe the trend favors more CAD strength. For traders, this suggests positioning for a lower USD/CAD exchange rate. This could involve buying put options on the USD/CAD pair or selling futures contracts.
Our view is reinforced by recent economic data from late November 2025, which showed the Canadian economy added a solid 25,000 jobs, signaling resilience. This underlying economic strength supports a stronger currency. The data provides a fundamental reason for the CAD to continue appreciating against the greenback.
Policy Divergence
The policy divergence between central banks is also a key factor. The Bank of Canada held its interest rate at 5.0% in its early December 2025 meeting with a notably cautious tone, while recent data showed US inflation cooling to 3.1%. This suggests the Federal Reserve may ease policy sooner than the BoC, weighing on the USD.
While the USD is oversold and a small bounce is possible, we would view any rally as a selling opportunity. We see the 1.3850 to 1.3875 zone as a strong resistance level. Traders could use a modest USD rebound toward this area to initiate new short positions at a more favorable price.
If the USD/CAD pair breaks below the key 1.3769 level, it would confirm the downtrend. We would then be targeting a move towards the 1.35 to 1.36 range in the coming weeks. This move would retrace a significant portion of the rally we saw in the second half of 2025.
