USD/CAD is currently trading around 1.3765, near its recent lows. This follows the Bank of Canada’s decision to keep its policy rate steady at 2.25%. The bank maintains a cautious outlook, while the market expects a 25 basis point rate increase in the next year.
The Bank of Canada held the policy rate at 2.25% as anticipated, indicating this level is suitable for keeping inflation close to 2%. Even with uncertainties, market swaps suggest a potential rise to 2.50% within the next twelve months.
USD/CAD Forecast
The forecast predicts that USD/CAD will slowly decline and stabilize between 1.3500 and 1.3600. This information comes from the FXStreet Insights Team, which includes journalists who track market developments and insights from analysts.
With USD/CAD trading heavily at 1.3765, the Bank of Canada’s choice to maintain its policy rate at 2.25% is crucial. Their cautious tone is evident, but the market still expects a 25 basis point hike in the next year. This expectation should support the Canadian dollar.
Recent data from November 2025 shows Canadian inflation at 2.9%, above the central bank’s goal. Combined with a strong jobs report indicating a drop in the unemployment rate to 5.6%, the economy appears strong enough to handle higher rates. This reinforces the view that the Bank of Canada may need to act soon, despite its current cautious approach.
In contrast, the United States is showing signs of softening. The latest inflation data from November 2025 has dropped to 3.0%. The Federal Reserve is expected to stay on pause, and swap markets are starting to anticipate possible rate cuts in the latter half of 2026. This contrasting policy, with Canada tightening and the U.S. easing, is bearish for USD/CAD.
Impact of Policy Divergence and Oil Prices
We’ve seen similar divergence before, like in 2023, when different central bank policies affected currency trends. Additionally, West Texas Intermediate (WTI) crude oil prices have remained stable, staying above $85 per barrel. This generally supports the Canadian dollar. Given this scenario, USD/CAD is likely to trend lower.
For derivative traders, this suggests preparing for a gradual decline toward the 1.3500-1.3600 range. Buying USD put options with strikes around 1.3650 or 1.3600 for January or February 2026 expiry could capitalize on this expected movement. The slow downward trend also makes selling out-of-the-money USD call spreads with strikes above 1.3850 appealing for collecting premiums, provided volatility remains low.
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