Insights 
VT 
USD/CAD remains below its 200-day moving average of 1.3952 as markets anticipate the Bank of Canada’s rate decision. A 25bps cut to 2.25% is expected, but fiscal support and firm inflation make further cuts unlikely.
The swaps market indicates a 90% chance of a 25bps rate cut and a 50% chance for another cut to 2.00% within a year. US trade policy uncertainty is affecting Canada’s economy, with President Trump ending trade talks and increasing tariffs on Canadian goods.
Bank Of Canada’s Policy Rate Strategy
It is expected that the BOC will avoid cutting the rate below the estimated neutral range of 2.25% to 3.25%. The Canadian government is likely to announce a stimulative budget, in contrast to the UK’s upcoming budget, which may slow its economy. This could lead to GBP’s underperformance against the CAD.
The FXStreet Insights Team compiles market observations from experts, including analysis from commercial and internal sources.
We are looking at a very different situation today, on October 29, 2025, compared to the past environment discussed here. The Bank of Canada’s policy rate isn’t being cut to 2.25%; it currently stands firm at 4.5% following the aggressive hiking cycle of 2022-2023. The market’s primary focus now is on how long rates will stay at this restrictive level, not on an easing cycle.
Trade Strategies And Market Observations
The concerns about firm inflation mentioned in the analysis were prescient, as we all remember inflation peaking above 8% back in 2022. Even now, the latest data from Statistics Canada shows core inflation is stubbornly holding around 2.9%, which is keeping the Bank of Canada on hold. This makes the idea of imminent rate cuts highly improbable, unlike the scenario from the past.
The acute trade uncertainty from the Trump administration has been replaced by the more structured CUSMA framework. As a result, implied volatility in USD/CAD options has fallen from the highs seen during those earlier trade disputes. With USD/CAD currently trading around 1.3615, well below the 1.3952 level mentioned previously, the market is pricing in more stability.
Given the high interest rate differential between Canada and the U.S., traders should consider strategies that benefit from this. Selling USD/CAD forward contracts to collect the positive carry is a viable strategy, as the Bank of Canada is widely expected to hold rates higher for longer than the U.S. Federal Reserve. For options traders, selling premium through strategies like iron condors could be effective, capitalizing on the expected range-bound movement in the currency pair.
The old expectation of GBP underperformance against the CAD remains relevant. The UK economy continues to face challenges with sluggish growth, and the Bank of England has signaled a greater willingness to start cutting its own high rates in early 2026. This policy divergence should continue to weigh on the GBP/CAD cross, presenting potential bearish opportunities for derivative positions.
