The USD/CAD pair is stable after the Bank of Canada (BoC) decided to keep interest rates at 2.25%. The US Dollar is recovering slightly thanks to positive comments from US officials. Now, all eyes are on the Federal Reserve’s upcoming decision and Jerome Powell’s guidance. The Canadian Dollar holds steady against the US Dollar after the BoC’s unchanged interest rate. The USD/CAD is trading around 1.3570, waiting for the Federal Reserve’s interest rate announcement at 19:00 GMT.

BoC’s Interest Rate Decision

The BoC maintained the interest rate at 2.25%, which was expected and provided little new direction. The focus remains on inflation and economic adjustments, with the rate seen as “appropriate.” Global uncertainties are acknowledged, and the BoC stands ready to respond if necessary. Canada’s economy faces external challenges, with GDP growth predicted to be 1.1% in 2026 and 1.5% in 2027. Inflation is expected to average 2% in 2026 and 2.1% in 2027. The US Dollar gained support, bouncing back after comments from US officials about Forex stability. US Treasury Secretary Scott Bessent reiterated a “strong Dollar” policy. As a result, the US Dollar Index rose to approximately 96.40. Market participants are now focused on the Federal Reserve’s upcoming rate decision with insights from Chair Jerome Powell. The Bank of Canada, located in Ottawa, sets interest rates and manages monetary policy. It aims to keep inflation between 1-3% using tools such as raising or lowering interest rates and quantitative easing. These actions directly influence the strength of the Canadian Dollar.

The Fed and Its Impact

We’re observing a pattern similar to early 2026, where the BoC maintains its policy rate steady. Currently, the BoC holds its rate at 3.50%, leading to uncertainty for the Canadian Dollar. This pause is attributed to persistent domestic inflation, which remains at 2.8%, according to the latest report from Statistics Canada. The focus is now shifting to the Federal Reserve’s upcoming decision. While the BoC appears stable, recent US data has increased speculation about a Fed rate cut by mid-year, placing some pressure on the US dollar. For example, a non-farm payrolls report from two weeks ago showed a slowdown in job creation, raising speculation that the Fed may act sooner. For derivative traders, this suggests that implied volatility on USD/CAD may rise in the coming weeks. Options strategies like buying straddles could be profitable, benefiting from significant price movements in either direction without needing to predict the Fed’s exact stance. Currently, one-month implied volatility is around 7.1%, which is historically moderate and offers a fair entry point for such trades. If the Fed indicates a more aggressive rate-cutting cycle than expected, the USD/CAD might drop below its recent support level around 1.3400. However, if signals suggest that rate cuts are further off than anticipated, the pair could test resistance near 1.3650. The market, based on Fed funds futures, is pricing in a 70% chance of at least one rate cut by July. We also need to consider factors beyond central bank policy, such as commodity prices. West Texas Intermediate crude oil has been declining, recently dropping below $75 a barrel amid concerns about global growth. This weakness in oil, a key Canadian export, could limit the strength of the Canadian Dollar, even if the Fed adopts a dovish approach. Create your live VT Markets account and start trading now.

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