The USD/CAD pair is trading close to its lowest level in five months, and the reduced market activity due to holidays is keeping the price movement limited.
The Canadian Dollar is getting support because the Bank of Canada and the Federal Reserve are moving in different directions with their policies.
Markets expect the Bank of Canada to keep interest rates the same all through 2026, while the Federal Reserve is likely to slowly lower rates over time.
The Canadian Dollar (CAD) has seen small increases against the US Dollar (USD) on Wednesday. Meanwhile, the US Dollar remains stable with little change as markets prepare for the holiday period. Right now, the exchange rate for USD/CAD is around 1.3675, which is close to its lowest point since July 25.
The GDP data released on Tuesday didn't change people's feelings about the USD/CAD currency pair much. Canada's economy shrank by 0.3% from the previous month in October, which was exactly what people expected and went against the 0.2% increase seen in the month before. At the same time, the first look at third-quarter GDP showed the U.S. economy growing strongly at an annual rate of 4.3%, which was higher than the earlier estimate of 3.8% and also better than what experts had expected of 3.3%.
The Canadian dollar is still supported by the growing difference in policies between the Bank of Canada and the Federal Reserve. The Bank of Canada did not change its interest rate, keeping it at 2.25%, and said it feels confident with its current approach. They believe this setup is right for helping the economy while keeping inflation near the 2% goal.
Markets mostly saw the decision as the end of the BoC's rate-cutting phase, after lowering rates by a total of 100 basis points this year. In their recent meeting notes, the Governing Council said there is still a lot of uncertainty and talked about whether they should raise or lower rates next. The officials agreed that the current interest rate is probably合适 right now, but they said it's hard to tell when or if they'll change it again.
So, in the base case, the Bank of Canada plans to keep the interest rate around 2.25% for most of next year. However, there's some chance that they might raise the rate later in 2026.
In contrast, the Fed is expected to follow a slower path when it comes to reducing interest rates. Markets believe there will be more easing in monetary policy next year, as the Fed has already cut rates by 75 basis points this year. However, the Fed officials are not all in agreement about whether more rate cuts are needed, as they have different opinions about how inflation and the job market are doing.
However, most markets think the Fed will keep interest rates the same in January, with the CME FedWatch tool showing only a 13% chance of a rate cut, but they still expect two rate cuts later in the year.
The Canadian Dollar is getting support because the Bank of Canada and the Federal Reserve are moving in different directions with their policies.
Markets expect the Bank of Canada to keep interest rates the same all through 2026, while the Federal Reserve is likely to slowly lower rates over time.
The Canadian Dollar (CAD) has seen small increases against the US Dollar (USD) on Wednesday. Meanwhile, the US Dollar remains stable with little change as markets prepare for the holiday period. Right now, the exchange rate for USD/CAD is around 1.3675, which is close to its lowest point since July 25.
The GDP data released on Tuesday didn't change people's feelings about the USD/CAD currency pair much. Canada's economy shrank by 0.3% from the previous month in October, which was exactly what people expected and went against the 0.2% increase seen in the month before. At the same time, the first look at third-quarter GDP showed the U.S. economy growing strongly at an annual rate of 4.3%, which was higher than the earlier estimate of 3.8% and also better than what experts had expected of 3.3%.
The Canadian dollar is still supported by the growing difference in policies between the Bank of Canada and the Federal Reserve. The Bank of Canada did not change its interest rate, keeping it at 2.25%, and said it feels confident with its current approach. They believe this setup is right for helping the economy while keeping inflation near the 2% goal.
Markets mostly saw the decision as the end of the BoC's rate-cutting phase, after lowering rates by a total of 100 basis points this year. In their recent meeting notes, the Governing Council said there is still a lot of uncertainty and talked about whether they should raise or lower rates next. The officials agreed that the current interest rate is probably合适 right now, but they said it's hard to tell when or if they'll change it again.
So, in the base case, the Bank of Canada plans to keep the interest rate around 2.25% for most of next year. However, there's some chance that they might raise the rate later in 2026.
In contrast, the Fed is expected to follow a slower path when it comes to reducing interest rates. Markets believe there will be more easing in monetary policy next year, as the Fed has already cut rates by 75 basis points this year. However, the Fed officials are not all in agreement about whether more rate cuts are needed, as they have different opinions about how inflation and the job market are doing.
However, most markets think the Fed will keep interest rates the same in January, with the CME FedWatch tool showing only a 13% chance of a rate cut, but they still expect two rate cuts later in the year.
