Insights 
VT 
The US Dollar is reversing previous losses against the Canadian Dollar and is currently trading at 1.4048. Despite the recent bounce, the pair remains 0.3% lower for the week as it maintains a bearish outlook.
US Durable Goods Orders exceeded expectations, and weekly Jobless Claims fell to their lowest in seven months. These data points did not change the expectation of a 25 basis point interest rate cut by the Federal Reserve at its upcoming December meeting.
Potential Change In Fed Leadership
Kevin Hassett is considered a leading candidate to replace Jerome Powell as Fed Chair, potentially signalling increased monetary easing. The CME Fedwatch tool indicates an 85% likelihood of a quarter-point rate decrease in December, with forecasts of two or three additional cuts in 2026.
US markets are quiet due to the Thanksgiving holiday while the Canadian Dollar finds slight support from a crude price recovery. Canada’s Q3 GDP report, expected later this week, could show moderate economic recovery after two quarters of contraction.
The Federal Reserve plays a key role in setting US monetary policy by adjusting interest rates to control inflation and encourage employment. It holds eight policy meetings annually, attended by twelve Fed officials, to make these decisions. Quantitative Easing (QE) and Quantitative Tightening (QT) are tools used by the Fed that influence the US Dollar’s strength.
Monetary Policy Trends
With the US Thanksgiving holiday subduing market volumes, we see the US Dollar’s weakness against the Canadian Dollar as a trend set to continue. The market is overwhelmingly pricing in a Federal Reserve rate cut for the December 10th meeting, with the CME FedWatch tool showing an 85% probability. This expectation of easier monetary policy is the dominant force right now, overshadowing recent strong US economic data.
The pressure for the Fed to cut rates is reinforced by the latest inflation figures from October 2025, which showed Core CPI cooling to 2.1% year-over-year. While jobless claims recently hit a seven-month low, the Fed appears more focused on this disinflationary trend. This signals that the aggressive rate-hiking cycle that began back in 2022 and 2023 is now firmly in reverse.
On the other side of the pair, Canada’s upcoming Q3 GDP report is expected to confirm a modest recovery, pulling the economy out of a technical recession. Supporting the loonie further, WTI crude oil prices have climbed back towards $78 per barrel, and Canada’s own inflation has remained stickier than in the US, last reported at 2.8%. This reduces the pressure on the Bank of Canada to cut rates as aggressively as the Federal Reserve.
This growing policy divergence between a dovish Fed and a more patient Bank of Canada suggests a continued slide in the USD/CAD exchange rate. The potential nomination of Kevin Hassett, a known dove, to lead the Fed in 2026 would only accelerate expectations for further easing. Therefore, we should view any short-term strength in the US dollar as a selling opportunity.
Given this outlook, derivative strategies should be positioned for further USD/CAD downside in the coming weeks. We can look at past easing cycles, like the one in 2019, where policy divergence led to sustained currency trends. Traders might consider buying put options on USD/CAD to capitalize on this expected move lower, especially heading into the new year.
