USD/CAD is around 1.3685 as traders wait for the release of the FOMC minutes. The Fed has indicated only one interest rate cut by 2026, while the Bank of Canada (BoC) is likely to keep rates steady in the near future. During late Asian trading on Tuesday, USD/CAD is stable near 1.3685. The pair is consolidating ahead of the FOMC December meeting minutes in the New York session.

US Dollar Index Analysis

The US Dollar Index (DXY) is fluctuating around 98.00, close to its 12-week low of 97.75. Traders are keenly watching the FOMC minutes for clues on monetary policy. In its recent meeting, the Fed made a third consecutive cut of 25 basis points, bringing rates down to 3.50%-3.75%. They signaled just one rate cut by 2026. The Canadian Dollar’s performance is mixed against major currencies this week, which has low trading volume. The outlook for CAD has improved, as the BoC is not expected to lower interest rates anytime soon. The technical outlook for USD/CAD remains steady at 1.3685. The 20-day EMA is down at 1.3777, showing bearish momentum with the 14-day RSI at 30.6.

Market Sentiment Analysis

If USD/CAD drops below the 20-day EMA, losses could extend to 1.3543 if it falls below 1.3640. Currently, the market seems to be processing the different policies between the US and Canada. The Federal Reserve is set to move slowly with future rate cuts, while the BoC is likely to stand firm. This difference supports a downward trend for the USD/CAD pair in the coming weeks. Recent economic data supports a stronger Canadian dollar. In November 2025, Canada added 45,000 jobs, surpassing expectations and lowering the unemployment rate to 5.6%. This data suggests that the BoC doesn’t need to ease its policy soon. In contrast, recent US data has been softer, backing the Fed’s cautious stance. The final Q3 2025 US GDP revision showed a 1.9% growth rate, slightly below the initial estimates. Additionally, consumer confidence has decreased as we enter the new year. This trend limits the US dollar’s chances for a significant rise. We should also consider crude oil prices, which significantly affect the commodity-linked Canadian dollar. WTI crude is currently stable above $86 per barrel, supported by winter demand and OPEC+’s supply management. Earlier this year, oil prices above $80 helped strengthen the loonie. For those trading derivatives, buying USD/CAD put options that expire in February or March 2026 might be a smart move. A drop below the important 1.3640 support level would trigger this strategy, aiming for a price target of 1.3543. This method allows traders to take advantage of potential declines while clearly defining their risk. Alternatively, traders with a more conservative approach might consider selling out-of-the-money call spreads. Setting the short strike above the 20-day EMA resistance around 1.3777 could generate profits from time decay and the pair’s lack of movement upward. This strategy is appealing in a market expected to drift lower rather than crash. Create your live VT Markets account and start trading now.

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