The USDCAD pair continues to move within the uptrend, regularly updating the 4-year highs. The pair is getting closer to the level of 1.466, but first for the USDCAD buyers it’s important that the pair consolidates at 1.426. The technical picture indicates an overbought condition, but from a fundamental point of view quotes may continue to rise. Even a local correction of USDCAD is unlikely to interfere with the bullish sentiment.
While most of the world’s leading central banks are ready to continue the monetary easing cycle, the Fed may take a break next month. According to a Reuters poll, the US regulator will cut rates on Dec. 18. As for the January meeting, traders expect the cost of borrowing to remain unchanged. This decision is supported by growing inflation risks associated with the victory of Donald Trump in the US presidential election.
Meanwhile, the Bank of Canada today is preparing to reduce the key rate by 0.5% for the second time in a row. Such a scenario became the main one for investors after the publication of labor market statistics for November. The Canadian economy created 54,000 new jobs, but more than 80% of them came from the public sector. Private companies almost didn’t expand their operations, and the unemployment rate in the country jumped to 6.8% — the highest level since 2020.
Market participants also expect a soft monetary policy from the Bank of Canada next year. According to forecasts, the regulator will reduce the rate at each meeting at least until the summer of 2025, when it will reach the mark of 2.25%. At the same time, the Fed isn’t expected to reduce borrowing costs below 4% over the same time horizon. As a result, the yield spread between US and Canadian Treasuries has widened to its highest since 1997 at 127 basis points, pushing USDCAD higher.
In the current overbought conditions, a pullback in USDCAD to the 1.41 level or slightly lower is possible. Nevertheless, the uptrend with the next target at 1.426 will be maintained.
The following trading strategy can be suggested:
Buy USDCAD at the current price. Take profit — 1.426. Stop loss — 1.398.
