The path for USDCAD through late 2025 and into early 2026 points to sustained weakness, with the pair being on track to test the 1.3400–1.3420 range as bearish fundamentals remain in the driver's seat.
1. Monetary policy divergence in play.
The Bank of Canada (BoC) held the line on December 10, 2025, keeping its key rate at 2.25%—a clear signal its easing cycle had run its course. The market is now pricing in a lengthy pause, with some, like Scotiabank, even eyeing a potential 50-basis-point (bp) hike in the second half of 2026 if inflation and wage growth stay stubborn.
Over the US, the Federal Reserve's (Fed) rate-cutting story is far from being over, with at least four 25 bp reductions anticipated in 2026. This widening policy gap—steady versus dovish—is exerting consistent pressure on USDCAD and putting wind in the loonie's rally.
2. Inflation and economic resilience.
The Canadian Consumer Price Index (CPI) has settled comfortably around the BoC's 2% target (2.2% in November 2025), giving policymakers room to stay patient. The economy is showing its strength, with third-quarter (Q3) GDP growth being partially offset by a mild 0.3% dip in October.
Across the United States, all eyes are on January's inflation and employment data. Any fresh signs of a cooling American economy will only ramp up bets for Fed cuts and add fuel to the bearish fire under USDCAD.
3. Market sentiment and fund positioning.
Projections from Canadian financial institutions reflect a cautious consensus for the pair: RBC and TD see its gradual decline, whereas National Bank has set an ambitious target of 1.3200 by late 2026.
Investor sentiment is overwhelmingly negative, with technicals flashing "Strong Sell" and falling Treasury yields reducing the greenback's appeal. This bearish conviction is showing up in the options market, where traders are actively scooping up puts for Q1 2026—a clear vote of no confidence in the US dollar's near-term prospects.
The ultimate recommendation is to sell USDCAD if the price returns to 1.4030. Lock in profits at 1.3420. Place Stop Loss at 1.4350.
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.
