Insights 
VT 
The Canadian Dollar has shown resilience this week, experiencing a slight 0.1% drop against the US Dollar while performing well against other G10 currencies, except the Japanese Yen. Scotiabank’s Chief FX Strategists, Shaun Osborne and Eric Theoret, report a 0.5% gain for the CAD, bolstered by fundamentals and a narrowing interest rate differential due to expected US Federal Reserve easing.
The Bank of Canada’s outlook remains neutral, with minimal policy changes anticipated through October 2026. This week’s federal energy plan announcement has had little impact on the market amid the introduction of new tariffs on steel products. The USD/CAD fair value estimate stands at 1.3915, witnessing a slight decrease within the recent range.
Price Activity and Resistance Levels
Price activity has pointed to resistance around 1.4100, and attention now turns to downside risk with the focus on the 50-day moving average at 1.4005. The RSI has shifted back to neutral at 50, suggesting the chance of entering bearish territory. Expectations are for a near-term range between 1.3980 and 1.4080, with a neutral stance maintained unless the 50-day moving average is broken.
The Canadian dollar is strengthening against the US dollar because traders expect the U.S. Federal Reserve to start cutting interest rates. In contrast, the Bank of Canada is seen holding its policy steady for the foreseeable future, well into 2026. This policy difference makes holding Canadian dollars more attractive.
Supporting this view, Canada’s latest October inflation data, released last week, came in at a stable 2.1%, giving the Bank of Canada no reason to change course. Meanwhile, the most recent U.S. Non-Farm Payrolls report showed job growth slowing more than expected, reinforcing the case for future Fed easing. The steady price of WTI crude oil around $85 a barrel also provides a solid foundation for the loonie.
Upcoming Market Trends
For the coming weeks, we see the USD/CAD pair likely staying within a tight range, defined by strong resistance near 1.4100 and support around 1.3980. This environment is ideal for options strategies that profit from low volatility, such as selling strangles or setting up iron condors. The goal is to collect premium as the pair moves sideways.
However, we must watch the 50-day moving average at 1.4005 as a critical pivot point. A clean break below this level would signal a shift from a range-bound market to a new downtrend. Should this happen, traders should be prepared to close neutral positions and consider buying puts on USD/CAD to capitalize on a stronger Canadian dollar.
This situation is reminiscent of what we observed back in late 2023, when expectations of a Fed pivot first emerged and caused a significant narrowing of interest rate differentials. That period led to broad U.S. dollar weakness against currencies with more stable central bank outlooks. We may be entering a similar phase as we head towards the end of the year.
