Key Moments
- The Canadian Dollar is trading within one-tenth of one percent against the US Dollar as the final trading week of 2025 begins.
- USD/CAD remains firmly bearish below 1.3700, even though technical indicators show deeply oversold conditions.
- Markets are pricing in at least two Federal Reserve rate cuts through 2026, which caps US Dollar strength and keeps pressure on USD/CAD.
Range-Bound Loonie Starts Final Week of 2025
The Canadian Dollar (CAD) opened the final trading week of 2025 with little direction against the US Dollar (USD). On Monday, the pair moved in a narrow range as year-end conditions reduced trading activity.
Even so, the Loonie continues to hold recent gains against the Greenback. Those gains followed a largely one-way move in favor of CAD during the latter part of the fourth quarter.
Meanwhile, the currency pair shows no clear breakout signals as participation thins into year-end. As a result, intraday moves remain limited, but the broader bias still favors the Canadian Dollar.
Monetary Policy Divergence Supports CAD
Interest rate expectations remain the main driver for the Canadian Dollar. The Bank of Canada (BoC) now has limited room to ease policy after an aggressive cutting cycle in 2024 and 2025.
During that period, the BoC delivered nine rate cuts, including two consecutive double cuts in October and November 2024. As a result, Canadian rates are already near their lower bound.
By contrast, markets expect the Federal Reserve to move toward faster easing over the next two years. This outlook narrows the rate gap between the two economies and limits upside potential for the US Dollar.
Market Drivers: Thin Liquidity and Fed Minutes in Focus
Holiday conditions continue to weigh on trading volumes, keeping markets sluggish. Consequently, USD/CAD price action remains subdued, with a mild downside bias for the US Dollar.
| Key Market Points | Details |
|---|---|
| Intraday performance | The Canadian Dollar is holding within one-tenth of one percent against the US Dollar. |
| Current USD/CAD stance | USD/CAD remains in a clear bearish trend below 1.3700 despite oversold signals. |
| Year-to-date CAD move | After hitting 22-year lows early in 2025, the Loonie has rebounded and gained nearly 5% year-to-date. |
| Upcoming event | The Fed’s latest meeting minutes, due Tuesday, will offer fresh insight into policy discussions. |
| Rate expectations | At least two Fed rate cuts are priced in through 2026, keeping USD/CAD near multi-year lows. |
USD/CAD Technical Outlook
From a technical perspective, USD/CAD appears deeply oversold. This setup leaves room for a short-term corrective bounce.
However, broader macro forces continue to weigh on the US Dollar. As a result, any upside move may struggle to gain traction.
The pair remains below both the 50-day and 200-day EMAs. These averages have formed a bearish cross, which confirms the dominant downtrend.
On the upside, the 1.3800–1.3900 zone marks the likely ceiling for any rebound. Over the longer term, the technical bias still favors a move toward the 1.3500 area.
Canadian Dollar: Commonly Watched Drivers
Several factors continue to shape the Canadian Dollar’s performance. These drivers range from domestic policy decisions to global risk trends.
What Key Factors Drive the Canadian Dollar?
The main influences on the Canadian Dollar include:
- Interest rates set by the Bank of Canada
- Oil prices, Canada’s largest export
- Economic growth and inflation trends
- The trade balance between exports and imports
- Overall market sentiment, including risk-on and risk-off conditions
- The health of the US economy, Canada’s largest trading partner
How Bank of Canada Decisions Affect CAD
The Bank of Canada plays a central role in shaping the Canadian Dollar by setting benchmark interest rates. These rates influence borrowing costs across the economy.
The BoC aims to keep inflation within a 1%–3% range. To achieve this goal, it raises or cuts rates as needed.
Higher interest rates tend to support the CAD. In addition, quantitative tightening often boosts the currency, while quantitative easing usually weighs on it.
Impact of Oil Prices on the Canadian Dollar
Oil prices remain a key driver of the Canadian Dollar. Since energy exports dominate Canada’s trade profile, price changes often affect CAD quickly.
Rising Oil prices usually lift demand for the Canadian Dollar. Falling prices, on the other hand, tend to weaken it. Higher Oil prices also improve the odds of a positive trade balance.
Inflation and Its Influence on CAD
In modern markets, higher inflation can strengthen a currency if it leads to higher interest rates. In Canada, rising inflation often prompts the BoC to tighten policy.
Higher rates attract foreign capital seeking better returns. This inflow increases demand for the Canadian Dollar.
Macroeconomic Data and the Canadian Dollar
Economic data offer important clues about the Canadian economy and the CAD’s outlook. Key releases include GDP, PMIs, jobs data, and consumer surveys.
Strong data typically support the Canadian Dollar by encouraging investment and tighter policy. Weak data, however, increase downside risks.
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