USD/CAD is currently around 1.3710, influenced by a weaker US Dollar as the Federal Reserve may cut rates in 2026. The US President is considering a new Fed chair nomination, which could lead to lower interest rates. Recent minutes from the Federal Open Market Committee suggest they might pause rate cuts if inflation decreases. Some members, however, advocate for keeping rates steady. On the other hand, the Bank of Canada plans to maintain its rates despite a 0.3% drop in real GDP in October.

Canadian Dollar Strengthens

The Canadian Dollar is gaining strength due to rising Oil prices, which are crucial since Canada is a major supplier to the US. Geopolitical issues, especially around Ukraine and Russia, may push Oil prices even higher. US sanctions on Oil traders connected to Venezuela and upcoming OPEC+ meetings are also affecting Oil prices. West Texas Intermediate crude is stable around $57.60. The Canadian Dollar’s value is influenced by interest rates, the economy, Oil prices, and trade balance. The Bank of Canada plays a key role through its interest rate policies. When inflation rises, it often leads to higher interest rates, boosting the Canadian Dollar. Economic indicators like GDP and employment impact its value. Forex Analyst Akhtar Faruqui offers insights on these market dynamics. Given the current market situation, it seems the downward trend in USD/CAD will continue in the coming weeks. The main factor is the growing difference in policy between the dovish Federal Reserve and the more neutral Bank of Canada. The Fed funds futures market now estimates a greater than 70% chance of a rate cut by March, suggesting a weaker outlook for the US dollar.

Crude Oil Prices and Market Trends

Looking at the developments in 2025, the Fed’s three rate cuts were a reaction to a slowing economy, supported by a recent jobs report showing only 95,000 non-farm payrolls added. The expected appointment of a more dovish Fed chair in May strengthens the belief that further rate cuts are on the horizon. This is in contrast to the Bank of Canada, which remains firm as December’s CPI held steady at 2.4%, leaving little motivation to relax policies. Rising crude oil prices are another positive factor for the Canadian dollar. West Texas Intermediate holding around $57.60 is backed by geopolitical risks and a recent EIA report indicating lower US crude inventories, suggesting tighter supply. We expect the upcoming OPEC+ meeting on Sunday to maintain current production levels, which should support oil prices. For derivative traders, buying put options on USD/CAD could be a smart strategy to prepare for potential declines. We would recommend looking at February or March expirations with strike prices near 1.3600 to benefit from this expected movement. This approach limits risk while offering a notable upside if the pair drops below its recent support. Alternatively, for those more confident, taking short positions in USD/CAD futures contracts provides a direct strategy. Key technical levels indicate that if the price falls below 1.3700, it could test the 1.3550 support level observed in the third quarter of 2025. Setting a stop-loss just above the recent highs near 1.3780 is a wise way to manage risks in this trade. Create your live VT Markets account and start trading now.

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