USD/CAD has seen a small drop recently, despite the Canadian dollar (CAD) being slightly weaker. Typically, the CAD struggles at the end of the year, but this time, it’s holding up better than expected. In the past, the CAD has not performed well in late December, usually losing ground. The CAD does better in April compared to November. Currently, USD/CAD is trading just below its estimated fair value of 1.3794.

Limited US Dollar Gains

The US dollar (USD) seems to have limited room for further gains. Recent comments from Governor Macklem did not suggest any new monetary policies. He confirmed that the current interest rate of 2.25% is appropriate and that inflation is under control. Recent gains in the USD put pressure on the ongoing downtrend. Although the USD selloff seems extended, there might be a small correction pushing it above 1.3790 towards the 1.38 range, with support at 1.3725/30. This analysis comes from the FXStreet Insights Team, which provides expert market observations. The Bank of Canada’s steady policy rate of 2.25% contrasts with the U.S. Federal Reserve, which has cut rates for the third time this December. This difference limits the potential strength of the USD against the CAD. Therefore, the USD/CAD pair may struggle to maintain a significant rally above 1.3800. Recent economic data supports this view. Canadian core inflation remained steady at 2.9% in November 2025, while U.S. inflation has shown signs of cooling, allowing the Fed to ease policies. Given this, using options to bet against moves above 1.3850 or selling during rallies seems like a smart strategy in the coming weeks.

Seasonal Trends and Market Opportunities

Although December is usually an ambiguous month for the CAD, it’s showing unexpected strength this year. Historically, CAD tends to do well in spring, particularly in April, which has been its strongest month in eight of the last ten years. Another opportunity is emerging with the British pound (GBP). Weak inflation data makes a rate cut by the Bank of England likely this week. The latest UK Consumer Price Index hit a two-year low of 2.2%, reinforcing the expectation of easier policies. This makes buying put options on GBP/USD an appealing trade ahead of the announcement. Overall, the market is shifting towards safer assets; gold prices are increasing while riskier investments like cryptocurrencies are declining. The VIX, a key indicator of market anxiety, has risen from 14 to over 19 in the past week. This suggests that holding protective put options on major stock indices could be a wise move to guard against unexpected volatility during the end of the year. Create your live VT Markets account and start trading now.

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