USD/CAD Slips Toward Three-Month Lows as Fed Cut Bets Grow and BoC Holds Firm

Summary:

USD/CAD trades near three-month lows as rising Fed rate-cut expectations weigh on the US dollar, while a firm BoC stance and stronger Canadian inflation outlook continue to support the loonie.

Sell USDCAD

EXP

Trading

1.37550

ENTRY

1.35500

TGT

1.38600

1.37759 +0.00092 +0.07%

Point

Flat

1.35500

TGT

CLOSING

1.37550

ENTRY

1.38600

The US dollar continued to lose altitude against the Canadian dollar at the start of the week, leaving USD/CAD trading precariously close to its lowest levels in nearly three months as investors reassess the long-term US interest-rate outlook and position ahead of key inflation data from Canada.

During late Asian trading on Monday, the pair hovered around the 1.3750 area, a level that has increasingly acted as a pressure point for the Greenback. The inability of USD/CAD to stage a meaningful rebound reflects broader weakness in the US dollar, which has struggled to attract buyers as markets price in a more accommodative Federal Reserve policy path extending into 2026.

The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, remained subdued near an eight-week low of 98.13 set late last week. Sentiment toward the dollar has been weighed down by a combination of softening US labour-market signals and growing political pressure on the Fed to ease policy more aggressively.

According to the CME FedWatch Tool, traders now see a 64.3% probability that the Federal Reserve will cut interest rates at least twice by the end of 2026. While the Fed’s most recent dot plot still suggests a policy rate of around 3.4% by 2026—implying just one additional cut from the current 3.50%–3.75% range—markets appear increasingly skeptical that policymakers will be able to maintain restrictive settings for that long if economic momentum continues to cool.

Expectations of a more dovish Fed have been reinforced by persistent political commentary from President Donald Trump, who has repeatedly argued that US interest rates remain too high. Last week, White House spokeswoman Karoline Leavitt said the president welcomed the recent 25-basis-point rate cut but believes further easing is warranted. While the Fed remains institutionally independent, investors are clearly factoring in the political backdrop as a potential source of long-term pressure on US yields.

The next major test for US rate expectations comes with the release of November’s Nonfarm Payrolls report on Tuesday. Any further evidence of labour-market softening—particularly weaker job creation or slowing wage growth—would likely reinforce expectations for additional rate cuts and deepen the dollar’s downside, especially against currencies backed by relatively steady central banks.

In contrast, the Canadian dollar has found solid footing in recent sessions, supported by growing confidence that the Bank of Canada is nearing the end of its easing cycle. In its latest policy statement, the BoC struck a notably balanced tone, reiterating that the current policy rate is “about the right level” to keep inflation close to the 2% target, provided economic conditions evolve in line with forecasts.

That message has helped anchor Canadian yields and provided a tailwind for the loonie, particularly against a US dollar facing structural headwinds from declining rate differentials. Market participants now see little urgency for the BoC to cut rates further in the near term, a stance that stands in sharp contrast to the increasingly dovish expectations surrounding the Fed.

Attention on Monday shifts to Canada’s November Consumer Price Index, due at 13:30 GMT. Headline inflation is expected to rise to 2.4% year-on-year from 2.2% in October, a move that, if confirmed, would strengthen the argument for the BoC to remain on hold. A firmer inflation print could provide additional support for the Canadian dollar and increase pressure on USD/CAD to break below key technical levels.

Technical Analysis

From a technical perspective, USD/CAD remains entrenched in a broader bearish trend. The pair declined in its most recent intraday trading session and is now probing the critical support zone around 1.3755. Price action continues to trade below the 50-period exponential moving average (EMA50), reinforcing the dominance of sellers and confirming the persistence of downward momentum.

The broader structure remains negative, with the pair tracking along a steep descending trendline that has capped upside attempts in recent weeks. However, momentum indicators are beginning to flash early warning signs. The Relative Strength Index (RSI) has rebounded modestly from oversold territory, suggesting that while the trend remains bearish, downside momentum may temporarily lose intensity.

This divergence raises the risk of short-term consolidation or a corrective bounce, particularly if Canadian CPI fails to surprise to the upside or if US data stabilizes. Still, unless USD/CAD can reclaim territory above the 1.3850–1.3900 zone, rallies are likely to be viewed as selling opportunities rather than the start of a broader reversal.

TRADE RECOMMENDATION

SELL USDCAD

ENTRY PRICE: 1.3755

STOP LOSS: 1.3860

TAKE PROFIT: 1.3550

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Warren Takunda

Analysts

Warren Takunda, a seasoned finance leader specializing in the Middle East, is a trusted senior analyst with a proven track record. As head of the finance team, he excels in financial planning, analysis, and reporting. Warren's expertise in financial modeling and investment analysis delivers valuable insights to clients.

Rank

Articless

1932

Win Rate

63.79%

P/L Ratio

0.72

Focus on

XAUUSD, EURUSD, GBPUSD

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