The USD/CAD pair is currently around 1.3850, as traders await updates on monetary policy from the Bank of Canada (BoC) and the Federal Reserve (Fed). The BoC is likely to keep interest rates steady at 2.25% due to strong employment data from September to November after some initial layoffs. Meanwhile, the Fed is expected to lower the Federal Funds Rate by 25 basis points to a range of 3.50%-3.75% in response to a weak U.S. labor market. Additionally, they will provide new guidance for 2026, with a 58% chance of further cuts by October 2026. The U.S. Dollar Index is down 0.1%, showing a slight decrease against other major currencies. During Wednesday’s European session, the USD/CAD is trading around 1.3850, staying below the 200-day Exponential Moving Average (EMA) at 1.3912, which indicates some downward pressure. The 14-day Relative Strength Index (RSI) is at 35, suggesting limited upward movement, with resistance at the 200-day EMA. If the pair rises above this level, it might change the current bearish outlook, but consistent downward pressure could push it towards the 1.3720 support area. The decisions made by the Fed about monetary policy, especially changes in interest rates, affect the strength of the USD and influence global investments. The next important decision is expected on December 10, 2025, with a consensus rate of 3.75%, a slight decrease from the previous 4%. Today, there is a noticeable difference in central bank policies. The Bank of Canada is expected to keep rates at 2.25%, while the Federal Reserve plans to cut rates by 25 basis points. This split in policy comes from recent data, as Canada gained 60,000 jobs in November, while the U.S. added only 85,000 jobs, underperforming expectations. This situation favors a weaker U.S. Dollar against the Canadian Dollar. Considering this scenario, we are looking to buy put options on USD/CAD that expire in late January 2026. A strike price around 1.3800 allows for potential profit if the pair drops below its current level of 1.3850. Our main target is the important support level of 1.3720 seen back on August 7. We should be cautious of potential volatility surrounding the policy announcements. The Fed’s expected cut of 25 basis points is largely anticipated by the market. If the Fed sounds less dovish than expected, it could briefly push USD/CAD higher. We would view any rise towards the 200-day EMA at 1.3912 as an opportunity to enter or increase our bearish positions. Looking ahead, the Fed’s guidance for 2026 will be crucial, as traders expect at least two more cuts by October 2026. Historically, when the Fed starts a cycle of easing, it often leads to a trend of dollar weakness lasting several months, similar to what happened in the latter part of 2019. So, any strength in the USD/CAD pair in the coming days might be temporary.

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