The Canadian Dollar is holding steady as the Bank of Canada shares its policy decisions today, along with a statement from Governor Macklem. Analysts expect the bank to maintain its current position and keep messages neutral due to ongoing uncertainties. This suggests the easing cycle may be over, but there’s still room for flexibility in policy. Markets understand that central banks usually do not stay inactive for long. A rate increase next year appears likely, based on historical patterns between policy cycles. This expectation supports the Canadian Dollar’s value. Currently, the USD/CAD is trading within a narrow range. If it drops below 1.3840, it may continue to show losses for the USD. If this occurs, further targets could be 1.3750/60, with resistance levels at 1.3860 and 1.3930/40. The FXStreet Insights Team offers market observations and insights. This includes notes from commercial sources and analysis from both internal and external experts, providing different viewpoints on the current market. With the Bank of Canada expected to maintain a neutral position today, we believe the recent easing cycle is now complete. The bank is likely to keep rates steady, leaving future actions open without committing to immediate changes. This supports the idea that the next move, whenever it happens, is more likely to be a rate hike rather than a cut. Recent economic data backs this viewpoint. Last Friday’s robust jobs report showed Canada added 45,000 jobs in November, and Statistics Canada indicated that November’s CPI stayed strong at 2.9%. These results imply the economy can handle existing interest rates, leading markets to speculate about a possible rate increase later in 2026. For those trading derivatives, this suggests a strategy that favors a stronger Canadian dollar against the US dollar in the coming weeks. Selling out-of-the-money USD/CAD call options with strike prices above the 1.3930 resistance level could be a good strategy for collecting premiums. This method would be beneficial in either a sideways market or if the currency pair gradually declines. The technical chart setup appears to support this outlook, showing a bearish wedge pattern. If the price falls below the 1.3800 level, it would signal ongoing weakness for the US dollar, potentially targeting the 1.3750 area. Traders might consider using bear put spreads on USD/CAD to take advantage of this potential drop with defined risk. This contrasts with recent US data; November retail sales showed a slight decline, increasing speculation that the Federal Reserve may ease its policies sooner than the Bank of Canada. This difference in central bank perspectives should continue to impact the USD/CAD pair. We remember a similar pause from the Bank of Canada between 2017 and 2018 before resuming rate hikes, reminding us that these stagnant periods can precede new tightening cycles.

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