Bank of Canada Is Expected to Keep Interest Rates Unchanged, Marking the End of the Easing Cycle?

Summary:

The market anticipates the Bank of Canada will confirm its long-term holding stance, with the Canadian dollar maintaining strength and dragging USDCAD down to multi-week lows.

Buy USDCAD

EXP

Trading

1.37799

ENTRY

1.39500

TGT

1.37000

1.37621 -0.00079 -0.06%

Point

Flat

1.37000

CLOSING

1.37799

ENTRY

1.39500

TGT

Fundamentals

The Canadian dollar has been one of this month's top-performing currencies as markets increasingly believe the Bank of Canada has concluded its easing cycle and entered a prolonged pause in monetary policy. Expectations for tomorrow's rate hold are fully priced in, and the Canadian dollar could extend gains if Governor Tiff Macklem confirms this outlook.

The market widely expects the central bank to keep interest rates unchanged following nine rate cuts over the past 17 months. In late October, Macklem hinted that policymakers may have paused rate cuts after lowering the policy rate to 2.25%. While the central bank continues to emphasize that the economy is undergoing a “difficult transition” due to structural damage caused by the U.S.-China trade conflict, it also notes that monetary policy has limited scope to stimulate demand while maintaining stable inflation.

Subsequent data releases have further reinforced the case for holding rates steady.

Third-quarter GDP grew at an annualized rate of 2.6%, exceeding the Bank of Canada's forecast of 0.5%. November saw 54,000 new jobs added, continuing the steady growth momentum from September and October. Underlying inflation remains above the 2% target and may prove more persistent than the central bank anticipates. These developments further reinforce the conclusion that the easing cycle is nearing its end.

Markets will watch whether Macklem explicitly reaffirms his long-term suspension stance in the statement and press conference. Clear communication on this front could further bolster the Canadian dollar's strength in early 2026.

However, given current expectations and market pricing, the Canadian dollar is unlikely to experience significant volatility, especially considering that market focus is centered on the Federal Reserve's decision later today.

Bank of Canada Is Expected to Keep Interest Rates Unchanged, Marking the End of the Easing Cycle?_1

Technical Analysis

During Wednesday's European trading session, USDCAD traded near 1.3850. The pair has remained below the 200-day SMA of 1.3912 throughout its recent sharp decline, with bears continuing to dominate. The 200-day SMA had been rising gradually before flattening out, signaling a weakening trend strength. Failure to reclaim the 200-day SMA would keep downward pressure intact.

We anticipate a strong rebound following a break below the recent low of 1.3799. Should prices rise directly to the prior support level of 1.3936 (now acting as resistance), the upside potential would be limited.

Trading Recommendations

Trading Direction: Buy

Entry Price: 1.3780

Target Price: 1.3950

Stop Loss: 1.3700

Valid Until: December 26, 2025 23:55:00

Support: 1.3799, 1.3780, 1.3748

Resistance: 1.3904, 1.3923, 1.3950

Risk Warnings and Investment Disclaimers

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Eva Chen

Analysts

Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.

Rank

Articless

2127

Win Rate

58.26%

P/L Ratio

0.64

Focus on

XAUUSD, WTI, GBPUSD

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