According to ixbroker, the Canadian Dollar (CAD) is holding modest gains against the US Dollar (USD), even as the Greenback remains broadly firm amid thin holiday trading conditions. At the time of writing, USD/CAD is trading near 1.3675, hovering close to its lowest level since July 25, reflecting sustained support for the Loonie.
Recent macroeconomic data have had limited impact on market sentiment. Canada’s Gross Domestic Product (GDP) contracted by 0.3% month-on-month in October, in line with expectations and reversing a 0.2% expansion recorded in the previous month. In the US, the preliminary estimate of third-quarter GDP showed the economy expanding at an annualised pace of 4.3%, well above the prior estimate of 3.8% and market forecasts of 3.3%.
BoC stance supports the Canadian Dollar
The Canadian Dollar continues to draw support from a widening policy divergence between the Bank of Canada (BoC) and the Federal Reserve (Fed). At its December meeting, the BoC left its policy rate unchanged at 2.25% and signalled comfort with the current stance, noting that existing settings are appropriate to support economic activity while keeping inflation close to the 2% target.
Markets have largely interpreted the decision as confirmation that the BoC’s easing cycle has ended, following a total of 100 basis points of rate cuts since the start of the year. According to the latest meeting minutes, Governing Council members acknowledged elevated uncertainty and debated whether the next policy move could eventually be a hike or a cut. While officials broadly agreed that the current rate is “about right” for now, they stressed that both the timing and direction of the next adjustment remain highly uncertain.
Fed outlook contrasts with BoC policy path
The prevailing base-case scenario is for the BoC to keep the policy rate around 2.25% through most of next year, with some upside risk that the next move could be a rate hike in the second half of 2026. This outlook stands in contrast to expectations for the Federal Reserve, which is seen continuing along a more gradual easing path.
Markets anticipate further monetary policy easing from the Fed next year after a cumulative 75 bps of rate cuts delivered in 2025. That said, policymakers remain divided on the need for additional easing, reflecting differing assessments of inflation dynamics and labour market conditions. For now, investors widely expect the Fed to keep rates unchanged in January, with CME FedWatch pricing in just a 13% probability of a cut, while still forecasting two rate cuts later in the year.
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