USD/CAD is currently below its 200-day moving average of 1.3952 as the market looks ahead to the Bank of Canada’s decision on interest rates. A 25 basis point cut to 2.25% is expected, but with strong fiscal support and high inflation, further cuts seem unlikely.
The swaps market shows a 90% chance of a 25 basis point cut, and a 50% chance of another cut to 2.00% within the next year. US trade policies are creating uncertainty for Canada’s economy, particularly with President Trump halting trade talks and raising tariffs on Canadian goods.
Bank Of Canada’s Policy Rate Strategy
The Bank of Canada is likely to maintain its rate above the neutral range, which is estimated to be between 2.25% and 3.25%. Meanwhile, the Canadian government is expected to announce a budget aimed at stimulating the economy. This is quite different from the UK’s future budget, which may slow its economy down. As a result, the GBP might struggle against the CAD.
The FXStreet Insights Team gathers valuable market insights from experts, including analysis from both commercial and internal sources.
Today, on October 29, 2025, we face a much different situation compared to earlier times. The Bank of Canada’s policy rate is not being cut to 2.25%; it remains stable at 4.5% after the aggressive hikes in 2022-2023. Now, the market is focused on how long rates will stay high rather than on easing.
Trade Strategies And Market Observations
Concerns about inflation have proven accurate, especially considering inflation peaked above 8% in 2022. Currently, Statistics Canada reports core inflation is stubbornly around 2.9%, keeping the Bank of Canada from making any cuts. This scenario greatly differs from the past.
Trade uncertainty from the Trump administration has transitioned to a more organized environment with the CUSMA framework. Consequently, implied volatility in USD/CAD options has decreased from the peak levels seen during those earlier trade tensions. USD/CAD is currently trading at about 1.3615, significantly below the previous 1.3952 mark, signaling more market stability.
Given the significant interest rate difference between Canada and the U.S., traders might want to consider strategies that take advantage of this. Selling USD/CAD forward contracts can help collect the positive carry, as the Bank of Canada is expected to keep rates higher for a longer period compared to the U.S. Federal Reserve. Options traders may also find it beneficial to sell premium using strategies like iron condors to profit from the anticipated range-bound movement of the currency pair.
The expectation that GBP will underperform against CAD still holds. The UK economy is struggling with slow growth, and the Bank of England has shown a greater inclination to cut its high rates in early 2026. This difference in policy is likely to keep pressure on the GBP/CAD cross, presenting potential short opportunities for derivatives.
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