The US Dollar is changing course against the Canadian Dollar and is now trading at 1.4048. Even with this recent rise, the pair is still 0.3% lower for the week, maintaining a bearish trend. US Durable Goods Orders were better than expected, and weekly Jobless Claims dropped to their lowest level in seven months. However, these positive results did not alter the prediction 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 seen as a strong candidate to take over from Jerome Powell as Fed Chair. This change could indicate more monetary easing. The CME Fedwatch tool shows an 85% chance of a quarter-point rate cut in December, with expectations for two or three more cuts in 2026. US markets are quiet due to the Thanksgiving holiday, while the Canadian Dollar gets slight support from rising crude oil prices. Canada’s Q3 GDP report, coming later this week, could show a modest recovery after two quarters of decline. The Federal Reserve is vital in guiding US monetary policy, adjusting interest rates to manage inflation and boost employment. It holds eight policy meetings a year attended by twelve Fed officials. Tools like Quantitative Easing (QE) and Quantitative Tightening (QT) are used to influence the strength of the US Dollar.

Monetary Policy Trends

With the US Thanksgiving holiday slowing market activity, the US Dollar’s weakness against the Canadian Dollar is likely to continue. The market is heavily leaning towards a Federal Reserve rate cut at the December 10th meeting, with an 85% probability on the CME Fedwatch tool. This anticipation of easier monetary policy is overshadowing recent solid US economic data. The pressure for the Fed to lower rates is supported by the latest inflation data from October 2025, showing Core CPI cooling to 2.1% year-over-year. Although jobless claims recently reached a seven-month low, the Fed seems focused more on this trend of easing inflation. This indicates that the aggressive rate hikes that started in 2022 and 2023 are now being reversed. On the other hand, Canada’s upcoming Q3 GDP report is anticipated to show a slight recovery, pulling the economy out of a technical recession. Further supporting the Canadian Dollar, WTI crude oil prices have risen back toward $78 per barrel, while Canada’s inflation remains higher than in the US, last noted at 2.8%. This decreases the urgency for the Bank of Canada to cut rates as aggressively as the Fed. The growing gap between a dovish Fed and a more cautious Bank of Canada suggests the USD/CAD exchange rate will continue to fall. The potential appointment of Kevin Hassett, known for his dovish stance, to lead the Fed in 2026 would likely speed up expectations for more easing. Thus, any short-term strength in the US Dollar should be viewed as a chance to sell. Given this situation, traders should prepare for a further decline in USD/CAD in the coming weeks. Looking back at previous easing cycles, like the one in 2019, shows that policy divergence can lead to sustained currency trends. Traders may consider buying put options on USD/CAD to benefit from the anticipated downturn, especially as we approach the new year. Create your live VT Markets account and start trading now.

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