The Canadian Dollar (CAD) has come under renewed pressure against the US Dollar (USD) following the Bank of Canada's (BoC) decision to keep its policy rate unchanged at 2.25% for the fifth consecutive meeting, a move that was widely anticipated by markets [1][2]. The BoC reiterated its two-way policy optionality, noting that new US trade restrictions could argue for rate cuts, while persistently high energy prices might warrant consecutive increases. However, the central bank signaled no urgency to hike rates, citing excess supply in the economy and limited evidence of broad-based pass-through of higher energy prices to consumer prices [1].
Market participants had priced in 50 basis points of BoC rate hikes over the next twelve months, but Brown Brothers Harriman’s Elias Haddad believes this swaps curve is too aggressive and sees risk that USD/CAD could grind up toward 1.4140, the November 2025 high, as the curve adjusts lower [1]. Meanwhile, Scotiabank strategists Shaun Osborne and Eric Theoret highlight that softer oil prices and geopolitical concerns, including worries about US strikes on Iran, have pushed USD/CAD to new year-to-date highs, breaking above the March peak at 1.3967 [2]. CAD losses accelerated in late afternoon trade post-BoC announcement, with the currency selling off in line with the Norwegian Krone (NOK) as Brent and WTI prices dropped [2].
Despite earlier USD-negative price signals, the CAD failed to gain traction, and the spot gains through the March peak leave the currency vulnerable to further losses. Technical analysis from Scotiabank flags the USD as overbought but notes that trend momentum remains bullish, with a push into the 1.40–1.41 congestion range from Q4 likely. Support for USD/CAD is seen at 1.3900 [2]. Firmer stocks and a lower VIX might help steady the CAD, but sentiment remains bearish, with little support for the currency at present [2].
Both sources agree that the CAD is facing downside risk, with the BoC's cautious stance and external factors such as oil prices and geopolitical tensions contributing to the currency's weakness. Forward-looking statements from analysts suggest continued vulnerability for the CAD and potential for USD/CAD to test higher levels in the coming months [1][2].
CONCLUSION
The Bank of Canada's decision to hold rates and ongoing weakness in oil prices have combined to push the Canadian Dollar lower, with USD/CAD breaking key resistance levels and analysts forecasting further downside risk. Market sentiment is bearish for the CAD, and technicals point toward a test of the 1.40–1.41 range. Unless supportive factors emerge, the CAD is likely to remain under pressure in the near term.