Looking ahead to the end of 2025 (November-December), the USDCAD pair is likely to stay strong, pushed up by the policy divergence between the Federal Reserve (Fed) and the Bank of Canada (BOC). Here's the story: even though the American regulator has started cutting rates, stubborn US inflation means officials might have to tap the brakes. Its Canadian counterpart, in turn, has recently signaled it could be done easing for the year (with borrowing costs at 2.25%) unless economic data take a sharp turn for the worse.
This rate advantage is propping up USDCAD for now. But 2026 is a different catch. The script flips—expectations for deeper Fed rate cuts are the main reason the pair is likely to weaken down the road.
After a sluggish second half of 2025, Canada's GDP growth is expected to pick up steam in 2026. Key metrics are looking up: inflation is almost on target (2%), and the job market is firming, with unemployment down to 6.9% in October. Meanwhile, the cooling US economy gives the central bank enough room to act.
Being a commodity-currency, the Canadian dollar is hitched to oil's wagon. If the energy complex gets a second wind, it could give the loonie a much-needed shot in the arm and halt any USDCAD's rally.
Currently, investor sentiment is a mixed bag, leaning bearish on CAD for the short haul. However, the long-run outlook isn't all doom and gloom for the currency.
Adding to the near-term headwinds is a stubborn seasonal pattern where the pair tends to catch a bid in the last two months of the year.
The overall recommendation is to buy USDCAD. Lock in profits at 1.4090. Place Stop Loss at 1.3940.
Calculate your open position so that a potential loss (protected by a Stop Loss order) is limited to 1% of your deposit. If your account balance does not allow entering a position of this size, it is better to skip the trade and wait for other market signals that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
