The USD/CAD pair is weakening - Investors await new signals from the Bank of Canada

At the end of the 2025 trading week, the USD/CAD exchange rate pair is showing signs of selling pressure as the market falls into a lull in the final days of the year. Most traders have withdrawn from the market, leading to a significant liquidity shortage and a lack of momentum to drive price movements. This situation reflects a market waiting phase, where major decisions will be postponed until the new year.

Technical signals indicate a continuation of the downtrend

On the daily chart, the USD/CAD pair is trading at 1.3697, reflecting the weakening of the Canadian dollar against the US dollar. However, technical indicators reveal a more complex picture. The price is currently below both the 50-day and 200-day moving averages, both of which are trending downward. Notably, the 50-day EMA has just crossed below the 200-day EMA, a classic signal indicating the continuation of the downtrend and limiting short-term recovery prospects.

The RSI indicator is currently near 32, indicating waning momentum after reaching oversold territory. At the same time, the Stochastic has started to turn upward from extreme levels, suggesting that selling pressure is in the process of waning. While these signals may indicate a short-term correction, the primary trend remains favoring the sellers as long as the price stays below the key moving averages.

Monetary policy: A key factor in the next half-year

The policy divergence between the US Federal Reserve (Fed) and the Bank of Canada (BoC) will be a decisive factor for the outlook of the USD/CAD pair in 2026. The latest minutes from the (FOMC) show that Fed policymakers remain cautious. Although the target interest rate has been widened, the FOMC stated it will continue to consider rate cuts, but only if inflation continues to cool.

Conversely, the Bank of Canada is maintaining low interest rates and is expected to keep a dovish stance in the coming year. This widening policy gap could exert long-term pressure on the CAD, but currently, the market is digesting the recent rate cuts by the Fed.

Technical outlook: Resistance levels may shape the direction

Success or failure in breaking above the 50-day EMA will be a crucial turning point in the coming weeks. If USD/CAD closes above this level, selling pressure could ease slightly, opening the possibility of a recovery toward the 200-day EMA. However, if it fails to break this threshold, the risk of further decline remains the main threat.

Stability in oscillators like RSI and Stochastic may provide short-term support for a temporary rebound, but long-term trend signals still favor the sellers. Only when the moving average barriers are clearly broken can a new outlook emerge.

In summary, the USD/CAD pair is currently in a transition phase, with the market awaiting new signals from economic data and policy mechanisms. The quiet end-of-year period may be disrupted when investors return in 2026.