USD/CAD was little changed after the Bank of Canada left policy unchanged. The bank’s statement adopted a cautious stance on growth and inflation, removing references to higher and lower interest rates, while describing growth as improving but subject to risks and inflation as high but slowing. Governor Tiff Macklem stressed uncertainty and said the Canadian Dollar is not a major factor in policy decision-making.
Scotiabank’s fair value estimate for spot USD/CAD edged down to 1.3974, the lowest in nearly a month, and its framework remains modestly supportive for the CAD. On the chart, the pair has moved below the 23.6% retracement of the May/June rally at 1.4083, while oscillators retain a bearish bias. The next level in focus is the 38.2% retracement support at 1.3981, with any mild USD rebounds seen fading ahead of the low-to-mid 1.41 area.
Trading Recommendations and Current Momentum
We recommend that derivative traders position themselves for a stronger Canadian Dollar against the US Dollar over the coming weeks. With the Bank of Canada keeping its policy steady, the USD/CAD pair is showing clear signs of downward momentum. We should look to short USD/CAD or buy CAD call options as the pair trades near the 1.40 level, targeting a drop toward the 1.3981 support mark.
Macro Fundamentals and Risk Management
Recent economic indicators from the second quarter of 2026 show Canada’s annual inflation rate holding steady near 2.3%, reducing the immediate pressure for aggressive interest rate cuts. Additionally, narrowing yield spreads between Canadian and US government bonds have historically paved the way for CAD strength. When the USD/CAD exchange rate fails to break above the 1.41 threshold, historical data shows it frequently pulls back toward its fair value, which is currently estimated at 1.3974.
We advise selling into any minor USD rebounds that push the pair back toward the mid-1.41 area. Using short-term put options with three-to-four-week expirations will help us capture this downward move while managing our risk. We must monitor the upcoming Canadian gross domestic product and employment releases closely, as strong data will likely speed up the decline toward 1.3981.
