The Canadian dollar (CAD) traded sideways on Tuesday, mirroring the muted tone of the US dollar (USD) as investors positioned themselves ahead of the Federal Reserve’s (Fed) final policy announcement of the year.
A third consecutive rate cut is widely expected, but markets are focused on potential adjustments to the Fed’s Summary of Economic Projections (SEP) and any shift in tone from Chair Jerome Powell in one of his final press conferences before his term concludes.
Trade tensions with Washington resurface
Beyond the looming Fed decision, CAD traders remain alert to escalating trade tensions with the Trump administration. President Donald Trump announced an additional $12 billion in agricultural support for US farmers, who have suffered significant collateral damage from ongoing trade disputes.
At the same time, he renewed criticism of Canada’s trade stance, threatening new tariffs on US firms importing Canadian fertilizer – despite the fact that American agriculture depends heavily on Canadian suppliers. The move risks further destabilizing the farming sector while offering little strategic leverage, especially as Canada remains cautious about re-engaging in negotiations after Trump previously threatened to dismantle the very trade agreement he renegotiated during his first term.
Daily digest: Canadian dollar stalled ahead of fed
- CAD remains rangebound ahead of the Fed decision, with USD/CAD capped near 1.3850.
- The Canadian dollar staged a sharp rebound over the past two weeks, rising 2.3% from early-November lows.
- Momentum has faded as traders await the Fed’s final policy signals of 2025.
- Markets are watching for changes to the Fed’s dot plot for 2026 rate expectations.
- While a third straight cut is anticipated, Powell’s messaging on data dependency – especially as his term ends in March- will likely drive volatility.
Canadian dollar price outlook
After a strong two-week rally that pushed USD/CAD to fresh short-term lows, bullish CAD momentum appears to be losing steam. Technical indicators have slipped into oversold territory, and a rebound from the 1.3800 level suggests the latest Loonie push may have reached its limit. With bearish pressure easing, USD/CAD could be entering a consolidation phase or preparing for a corrective move higher.
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