The Canadian Dollar has shown its strength this week, dropping only 0.1% against the US Dollar. It has performed well against other G10 currencies, except the Japanese Yen. According to Scotiabank’s Chief FX Strategists, Shaun Osborne and Eric Theoret, the CAD has gained 0.5%, thanks to strong fundamentals and a narrowing interest rate gap due to anticipated easing from the US Federal Reserve. The Bank of Canada is expected to keep a neutral outlook, with few policy changes likely until October 2026. This week’s announcement of a federal energy plan did not significantly impact the market, especially with new tariffs on steel products coming into play. The fair value estimate for USD/CAD is around 1.3915, showing a slight decrease within the recent range.

Price Activity and Resistance Levels

Recent price activity indicates resistance near 1.4100. Now, traders are looking at potential downside risks, particularly focusing on the 50-day moving average at 1.4005. The RSI has returned to a neutral position at 50, hinting at the possibility of entering bearish territory. The near-term expectation is a trading range between 1.3980 and 1.4080, maintaining a neutral stance unless the 50-day moving average is broken. Traders are becoming optimistic about the Canadian dollar against the US dollar because they expect the U.S. Federal Reserve to cut interest rates soon. In contrast, the Bank of Canada is likely to keep its policies steady up to 2026, making Canadian dollars more appealing to hold. Recent October inflation data from Canada showed a stable rate of 2.1%, giving the Bank of Canada no reason to change its approach. At the same time, the last U.S. Non-Farm Payrolls report indicated slower job growth than expected, which strengthens the case for future Fed easing. The steady price of WTI crude oil, around $85 a barrel, also supports the loonie.

Upcoming Market Trends

In the upcoming weeks, we expect the USD/CAD pair to remain within a narrow range, with strong resistance near 1.4100 and support around 1.3980. This situation is excellent for options strategies that thrive in low volatility, such as selling strangles or creating iron condors. The aim is to collect premiums while the pair moves steadily. However, it’s crucial to keep an eye on the 50-day moving average at 1.4005 as a key pivot point. If the price drops below this level, it would signal a shift from a range-bound market to a potential downtrend. If that occurs, traders should be ready to close neutral positions and consider buying puts on USD/CAD to take advantage of a stronger Canadian dollar. This scenario resembles the late 2023 period when expectations of a Fed pivot emerged, leading to a significant narrowing of interest rate differentials. That moment resulted in a broad weakening of the U.S. dollar against currencies with more stable central bank outlooks. We may be entering a similar phase as we approach year-end. Create your live VT Markets account and start trading now.

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