USD/CAD has bounced back from 1.3640 but struggles to go beyond 1.3700. A slight rise in oil prices helps the Canadian Dollar (Loonie), while traders keep an eye on the upcoming Fed meeting minutes. Recently, the US Dollar moved up from five-month lows near 1.3640 against the Canadian Dollar, but any gains are capped below 1.3700. The Fed’s potential rate cuts in December continue to influence market views.

Fed Meeting Minutes and Market Outlook

The Fed’s meeting minutes are expected to reveal differing opinions among members, which could support predictions of significant rate cuts by 2026. Additionally, President Trump plans to nominate a new Fed Chairman who supports reducing rates. In 2025, the US Dollar has dropped by 20% against the Canadian Dollar due to a weaker economic outlook and different monetary policies from the Fed and the Bank of Canada (BoC). Canada’s main export, oil, has seen a small price increase due to geopolitical tensions, easing fears of overproduction. Key elements affecting the Canadian Dollar include BoC interest rates, oil prices, economic performance, inflation, and trade balance. Higher interest rates, rising oil prices, and strong economic data can strengthen the CAD, while the US economy’s health and market mood also matter. With USD/CAD struggling to remain above 1.3640 and failing at 1.3700, this seems to be a temporary stall in a larger declining trend for the pair. The focus is on the Fed’s meeting minutes coming out later today, which may confirm the market’s dovish expectations. A hawkish surprise appears unlikely based on recent data.

Impact of US Economic Data on Future Rate Cuts

We expect these minutes to showcase notable internal disagreements, reinforcing the belief that more rate cuts are likely in 2026. This view is supported by preliminary Q4 GDP data from the US, which showed a disappointing 1.2% annualized growth. A weakening economic outlook gives the Fed strong reasons to keep easing policy. Political pressure from President Trump to choose a new Fed Chair who advocates for aggressive rate cuts weighs heavily on the US Dollar. This uncertainty makes it challenging to argue for any lasting dollar strength as we enter the new year. Traders should see any upward movements toward 1.3700 as chances to prepare for further declines. On the other hand, the Canadian Dollar remains relatively strong. Canada’s November inflation rate came in at 2.9%, keeping the Bank of Canada from considering rate cuts for now. This growing gap between a dovish Fed and a steady BoC is a major driver of USD/CAD weakness. Support for the Loonie also comes from oil prices, with WTI crude staying above $85 a barrel. Ongoing sanctions on Russia and Iran are tightening global supply forecasts for 2026, providing solid support for crude prices. As Canada’s main export, strong oil prices are beneficial for the Canadian economy and its currency. With the US Dollar already down nearly 20% against the Canadian Dollar in 2025, it seems likely to continue lower. We recommend traders adopt strategies that capitalize on this trend, such as buying put options on USD/CAD or selling futures during rallies. Watch closely for a break through the recent low of 1.3640. Create your live VT Markets account and start trading now.

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