The Canadian Dollar hit an 11-week high against the US Dollar after the Bank of Canada (BoC) decided to keep interest rates unchanged, unlike the Federal Reserve, which implemented its third rate cut in a row. The BoC Governor emphasized the need for patience, resisting market expectations for rate cuts, while the Fed’s reduction matched what the market anticipated but came with a warning against further cuts in the near future. The USD/CAD exchange rate dropped below 1.3800 for the first time since September, as the BoC maintained rates at 2.25% while the Fed adjusted theirs to 3.75-4.00% and expanded Quantitative Easing. The BoC’s position is likely to depend on upcoming Canadian CPI inflation data, which could clarify its approach to rates. Despite the Fed’s cuts, Powell advised against expecting major policy changes anytime soon.

Technical Analysis

From a technical perspective, the USD/CAD pair is under downward pressure, trading below both the 50-day and 200-day EMAs, displaying bearish momentum. Indicators like RSI are trending down, and Stochastics are close to oversold levels, confirming this trend. While sellers are in control, market stability above the crucial support range of 1.379–1.372 may indicate a period of consolidation. The Canadian Dollar’s performance is shaped by BoC interest rate decisions, oil prices, economic health, inflation, and trade balance. Its value is also closely linked to the US economy due to strong trade connections, with oil prices and indicators such as GDP and employment directly impacting its strength. Given the growing difference in interest rates, it’s likely the Canadian Dollar will maintain its strength against the US Dollar in the coming weeks. The Fed’s decision to cut rates to the 3.75-4.00% range makes holding Canadian Dollars more appealing, while the BoC remains firm at 2.25%. This divergence is a key factor pushing the USD/CAD pair lower. Recent economic signals support the Fed’s cautious approach, particularly with the November non-farm payrolls showing slower than expected hiring and a downward revision of third-quarter GDP growth to 1.8%. This data points toward a cooling US economy and a weaker Dollar, which strengthens the bearish outlook for USD/CAD.

Bank of Canada’s Stance

In Canada, the BoC’s cautious stance is reasonable due to ongoing inflation issues. The last CPI reading for October 2025 was a stubborn 2.8%, significantly above the central bank’s target of 2%. This makes it unlikely that the BoC will implement any rate cuts soon, providing a solid foundation for the Canadian Dollar. From a trading standpoint, the USD/CAD pair appears to be trending down after breaking below key long-term moving averages. Traders should closely monitor the support zone between 1.3720 and 1.3790. A consistent break below this range could indicate increased selling pressure, making USD put options or CAD call options attractive. However, we also need to consider oil prices, which could limit the Canadian Dollar’s gains. West Texas Intermediate crude futures for January 2026 are hovering around the mid-$70s, which is not particularly strong for Canada’s export-driven economy. This may prevent significant declines in the USD/CAD pair, suggesting a slower downward trend instead. The next big event will be the Canadian CPI data set to release on Monday, December 15th. A strong inflation reading could support the BoC’s hawkish stance and likely push USD/CAD to new lows. Traders should prepare for increased volatility around this release and manage their positions accordingly. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now