USD/CAD is trading close to 1.3850 as both Canada and the US prepare for interest rate decisions. The Bank of Canada is expected to maintain rates at 2.25%, while the Federal Reserve might lower rates by 25 basis points. The US just shared new job statistics, revealing 7.67 million job openings in October, an increase from 7.658 million in September. This number exceeded expectations of 7.2 million. Following this, the US Dollar Index remained steady at around 99.25 after a previous increase.

Interest Rate Expectations

Right now, there is an 87.6% chance that the Federal Reserve will lower interest rates to 3.50%-3.75% in December. If this happens, it will be the third consecutive rate cut from the Fed. The central bank’s Economic Projections report will give new forecasts on inflation, growth, and unemployment. In Canada, the job market added 180.6K jobs between September and November after a loss of 106.3K jobs in the summer. The unemployment rate also fell from 6.5% in October to 6.9% in November. With USD/CAD around 1.3850, we see a significant difference in central bank policies today. The Federal Reserve is expected to cut its rate to 3.75%, while the Bank of Canada is likely to keep its rate steady at 2.25%. This difference is currently driving movements in the currency market. For derivative traders, focusing on the implied volatility around today’s announcements is crucial. With a high chance of a Fed rate cut, much is already reflected in the pricing. However, the Fed’s economic projections, or “dot plot,” remain uncertain. US inflation has cooled over the past year, with the annual CPI rate dropping to 3.1% in November 2025, supporting the Fed’s decision to ease policies.

The Canadian Economy

The Canadian economy presents a different picture, justifying the Bank of Canada’s choice to hold rates. Canada’s GDP for Q3 2025 grew at a surprising 1.5% annualized rate, backed by stable oil prices with WTI crude staying above $80 per barrel. This strong performance gives the BoC room to wait, which should help support the Canadian dollar. In this context, one strategy for the coming weeks is to prepare for potential Canadian dollar strength against the US dollar. Traders might consider buying USD/CAD put options to benefit from a possible downward move, especially if the Fed’s guidance is more dovish than expected. Selling out-of-the-money call options could also be a good way to earn premium, betting that the pair won’t rise significantly. Looking at recent trends, we recall that in 2019, the Fed cut rates three times while other central banks held steady, resulting in a period of US dollar weakness. The current situation, with strong US job growth but easing inflation, reflects the mixed signals that often come before major policy and market changes. As we look towards early 2026, if the Fed continues its easing cycle while commodity prices stay firm, USD/CAD may face more downward pressure. This suggests that longer-dated derivative strategies, like options expiring in January or February 2026, could be useful for positioning below the 1.3800 level. However, the key risk remains a potential hawkish stance from the Fed, which could cause a quick rise in the US dollar. Create your live VT Markets account and start trading now.

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