The Canadian Dollar has remained stable after recovering from losses, with the USD proving slightly overvalued compared to an equilibrium estimate of 1.3625. This recent valuation suggests fluctuations driven by global geopolitical risks and concerns over persistent core inflation seen in the recent Bank of Canada decision summary.

The BoC considered a 0.25% rate cut briefly, yet current pricing indicates a lesser expectation for cuts by year-end, compared to the previous 50 bps. There is anticipation of no policy changes this year, with minor easing expected in 2026.

Technical Trends and Analysis

In technical terms, USD gains through the mid-1.36 range offer short-term relief from a general downtrend, yet broader trends remain USD-negative. Support is noted at 1.3635, which might help USD maintain minor declines.

There is widespread expectation for the US Federal Reserve to leave interest rates unchanged following recent adjustments. Interest remains on how geopolitical tensions and macroeconomic events will influence market confidence and asset behaviour, including cryptocurrencies maintaining key support levels.

Trading in foreign exchange carries high risks, particularly due to the leverage involved, and it’s crucial to thoroughly understand these risks before participating. Always consider professional financial advice when uncertain about trading decisions.

Looking at the current state of the Canadian Dollar against the US Dollar, what we’ve observed is a fairly firm consolidation after a period of moderate weakness. The data shows the USD trading above its implied fair value—hovering around 1.3625—which implies it may face headwinds if external shocks stabilise or risk aversion eases. The strength of the USD at these levels looks stretched, especially when shorter-term drivers like geopolitical disruptions begin to fade from immediate pricing.

Policymakers at the central bank briefly explored lowering interest rates, although they ultimately pulled back from action. This wasn’t without reason. Underlying inflation, particularly in core metrics, remains sticky, and that’s what made the decision to hold firm quite compelling. Traders who may have been positioning themselves for aggressive easing earlier in the year are now being forced to reconsider. The latest forward pricing reflects waning conviction in year-end rate cuts, and noticeably, easing expectations have been nudged towards the latter half of next year.

Global and Local Market Influences

Charts are still painting a top-heavy picture for the USD. Prices near mid-1.36 do provide a small relief bounce, but given broader directional forces, it doesn’t suggest a structural turn. A key area has formed around 1.3635—this is now being viewed as a possible short-term floor. If support there is broken without a compelling catalyst for USD strength, we’ll likely see renewed flows out of the greenback, particularly if opposing forces—like commodity-linked growth prospects—firm up again on better global sentiment.

In parallel, markets are watching for steady hands from Washington. There’s no expectation of any changes in interest rates by the Fed for the moment. Inflation indicators in the States haven’t firmed enough beyond projections to spark urgency on either side. As a result, the emphasis is shifting elsewhere—to political risks, military tensions, and the reliability of leading indicators. Asset classes, particularly those sensitive to volatility like cryptocurrencies, are managing to cling to support areas. That reinforces a perception that even high-risk instruments aren’t pricing in a spiralling deterioration in sentiment.

From a volatility perspective, options pricing has decoupled slightly from realised moves in majors. What we’re seeing is premium build-up without material directional conviction. That typically offers pockets of opportunity. Particularly for those of us managing derivative exposure, these are the times when an eye toward skew, implied-to-realised spreads, and relative value plays across correlating currencies becomes not just useful—but essential.

We have to remember that leverage exaggerates not just outcomes but misunderstandings too. Quick direction changes tied to news releases—especially of a political or inflation-related nature—can flip a neutral position into a heavily directional one in moments. This is not the time to chase short-term sentiment but rather calibrate for exits, hedge selectively, and remember: volatility can be scarce and still destructive when misread.

In the coming sessions, movements near technical levels should be monitored closely for liquidity signals rather than headline-driven reactions. Forward interest rate markets are too quiet not to merit suspicion. Sometimes the absence of action says more than a surprise cut. Let’s stay tuned to flows—especially in North American time zones—for cues well before they show up in spot pricing.

Create your live VT Markets account and start trading now.