The Canadian Dollar reached an 11-week high against the US Dollar after the Bank of Canada held interest rates steady, contrasting with the Federal Reserve’s third consecutive rate cut. BoC’s Governor reiterated patience, resisting market calls for rate cuts, while the Fed’s policy cut aligned with market projections but came with a caution against further reductions soon.
The USD/CAD pair fell below 1.3800 for the first time since September, as the BoC kept rates at 2.25% and the Fed at 3.75-4.00%, along with an increased Quantitative Easing. The BoC’s stance anticipates Canadian CPI inflation data, potentially clarifying rate strategy efficiency. Despite Fed rate cuts, Powell advised against hoping for radical policy shifts imminently.
Technical Analysis
Technically, USD/CAD faces downward pressure, even as the price breaks below the 50-day and 200-day EMAs, with bearish momentum evident. Momentum indicators like RSI trending lower and Stochastics near oversold levels reinforce this. While sellers maintain control, market stability above the key support range of 1.379–1.372 could signal consolidation.
The Canadian Dollar’s movement is influenced by BoC interest rate decisions, oil prices, economic health, inflation, and trade balance. CAD performance is closely tied to the US economy due to significant trading ties, with Oil prices and economic indicators like GDP and employment figures directly affecting its value.
Given the widening interest rate differential, we see a clear path for continued Canadian dollar strength against the US dollar in the coming weeks. The Federal Reserve’s recent decision to cut rates to the 3.75-4.00% range, while our own Bank of Canada holds firm at 2.25%, makes holding loonies more attractive. This policy divergence is the dominant factor driving the USD/CAD pair lower.
The Fed’s dovish turn seems justified by recent economic signals from late 2025. For example, the November non-farm payrolls report showed hiring slowed more than expected, and third-quarter GDP growth was revised down to 1.8%. This data supports the case for a cooling US economy and a weaker greenback, reinforcing the bearish outlook for USD/CAD.
Bank Of Canada’s Stance
In Canada, the Bank of Canada’s patient stance is understandable when we consider that inflation remains persistent. The last CPI reading for October 2025 came in at a sticky 2.8%, which is still well above the central bank’s 2% target. This makes it highly unlikely that we will see any rate cuts from the BoC soon, providing a solid floor of support for our currency.
From a trading perspective, the path of least resistance for USD/CAD is downward, as it has broken below key long-term moving averages. We should be watching the support zone between 1.3720 and 1.3790 very closely. A sustained break below this area would signal further selling pressure, making USD put options or CAD call options an interesting play.
However, we must also consider the price of oil, which could limit the loonie’s gains. West Texas Intermediate crude futures for January 2026 delivery have been hovering in the mid-$70s, which is not particularly strong for Canada’s export-heavy economy. This may prevent a dramatic freefall in the USD/CAD pair, suggesting a more gradual decline instead.
The next major catalyst will be the Canadian CPI data scheduled for release on Monday, December 15th. A hot inflation print would reinforce the BoC’s hawkish stance and likely send USD/CAD to new lows. Traders should be prepared for increased volatility around that release and manage their positions accordingly.
