More Rate Hikes Next Year! USD/CAD Volatility Ready to Continue

Tank

Summary:

Next year, the Bank of Canada may raise interest rates more than any other major central bank in the developed world.

BUY USDCAD

EXP

TRADING

1.40859

Entry Price

1.45000

1.38000

1.40815 -0.00256 -0.18%

0.0

Pips

Flat

1.38000

Exit Price

1.40859

Entry Price

1.45000

Fundamentals

The Bank of Canada is relatively unaffected by oil price volatility. Market expectations for the Bank of Canada’s policy rate in December have risen only slightly, by about 5 basis points. The National Bank of Canada believes that the correlation between oil prices and the Bank of Canada’s policy expectations has weakened significantly in recent years, with market attention shifting more toward domestic factors. These include the Bank of Canada’s recent slightly dovish policy stance, easing inflationary pressures, and U.S. President Trump’s renewed tariff threats—factors that have collectively dampened expectations for short-term interest rate hikes. However, the bank believes the market has merely pushed back the timing of a rate hike to 2027, rather than abandoning rate hike expectations altogether.

The Federal Reserve’s policy meeting this week has become the focus of global markets. Although the federal funds rate has remained in the 3.50% to 3.75% range since last December, recent increases in energy prices and hawkish remarks from some officials briefly boosted market bets on a resumption of rate hikes. However, most analysts believe the threshold for an immediate rate hike by the Fed remains high. Several former officials and economists have pointed out that the Fed typically does not implement one-off interest rate adjustments; once it begins raising rates after a prolonged period of inaction, it often signals the start of a new tightening cycle spanning several meetings. Therefore, policymakers must decide whether they are prepared to send this signal to the market, and at present, the Committee may still be inclined to remain cautious.

Technical Analysis

Looking at the USD/CAD on the 4-hour chart, the Bollinger Bands are narrowing and the moving averages are flattening out, suggesting a potential rebound to around 1.42. The RSI stands at 47, indicating the market has entered a wait-and-see zone. On the daily chart, the Bollinger Bands are narrowing, moving averages are flattening, and following a MACD death cross, the fast and slow lines have pulled back to near the 0-line, suggesting a potential trend reversal at any moment. With the RSI at 49, market participants are largely adopting a wait-and-see approach. Strategically, look to buy on dips.

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Trading Recommendation

Trading Direction: Buy

Entry Price: 1.408

Target Price: 1.45

Stop-Loss Price: 1.38

Support Levels: 1.39, 1.38, 1.37

Resistance Levels: 1.42, 1.45, 1.48

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More Rate Hikes Next Year! USD/CAD Volatility Ready to Continue

Risk Disclosure