USD/CAD Holds Ground Amid Divergent Monetary Policy

The U.S. dollar–Canadian dollar pair has entered a narrow consolidation corridor around the 1.3800 level during the Asian session on Thursday, 11 December 2025. The currency remains close to its lowest point since 22 October, underscoring the growing policy divergence between the Bank of Canada (BoC) and the Federal Reserve (Fed).

Policy Stance Divergence

The BoC held its policy rate steady at 2.25 % during its December 2025 meeting, citing resilient growth, moderating inflation, and an improving labour market. In contrast, the Fed cut its target range by 25 basis points to 3.5–3.75 %—the third consecutive easing move—bringing cumulative easing to 175 bp since September of the previous year. Although the Fed’s decision was broadly anticipated, it was not unanimous; dissenting voices warned of potential risks to the broader economy.

The divergence has translated into a widening carry trade. Canadian policy steadiness coupled with U.S. easing has exerted downward pressure on the CAD, pushing the USD/CAD pair toward and below the 1.3800 threshold. Traders have been cautious, with the pair trading in a tight band just beneath that level as markets await further signals from both central banks.

Recent Market Moves

  • Wednesday, 10 December: The CAD rallied to an 11‑week high against the USD following the Fed’s cut. BoC’s unchanged stance provided a supportive backdrop, but the Fed’s easing continued to dominate sentiment.
  • Thursday, 11 December: The USD/CAD entered a bearish consolidation phase, oscillating around 1.3800. The pair’s proximity to its October low indicates that any break below 1.3800 could trigger a more pronounced rally for the CAD.
  • Early Thursday: FX analysts noted that the pair’s current positioning suggests a sensitivity to forthcoming Fed policy statements. Market observers anticipate that the Fed’s next move could either solidify the CAD’s weakness or, if a hawkish shift materializes, provide a reprieve for the USD.

Economic Backdrop and Corporate Highlights

While monetary policy dominates the narrative, broader economic indicators remain supportive of the Canadian dollar. The Bank of Canada’s recent statement highlighted strong third‑quarter growth, tempering inflation, and a solid labour market—all factors that reinforce the case for a steady 2.25 % rate.

Corporate earnings also reinforce a positive environment for the CAD. Major Drilling Group International Inc. reported record quarterly revenue for Q2 2026, with revenue up to $244.1 million and an adjusted gross margin of 26.0 %. Such corporate strength bolsters confidence in Canada’s resource‑driven economy, providing an additional tailwind for the CAD in the absence of significant policy tightening.

Forward Outlook

The USD/CAD pair is poised at a critical juncture. Should the Fed maintain its dovish trajectory, the CAD could remain under pressure, potentially breaking below 1.3800 and accelerating its decline. Conversely, a hawkish pivot—particularly if the Fed signals an increase in the policy range—could support the USD, limiting further CAD depreciation.

Market participants should therefore monitor:

  1. Fed Minutes and Statements – any indication of tightening or continued dovishness.
  2. BoC Policy Outlook – the likelihood of future rate adjustments given current inflation and growth trajectories.
  3. Economic Data Releases – especially U.S. employment and inflation figures, which could sway sentiment.

In short, the USD/CAD pair remains a barometer of the evolving monetary policy environment. As the BoC and Fed chart divergent paths, traders must remain vigilant for any shifts that could reshape the exchange rate landscape.