USD/CAD recovers from its lowest level since July 2025, retakes 1.3600 ahead of BoC/Fed
- USD/CAD attracts some buyers on Wednesday amid a goodish USD recovery from a four-year low.
- Rising Crude Oil prices could underpin the Loonie and cap spot prices amid a bearish USD outlook.
- Traders now look to the key BoC and the Fed interest rate decisions for a fresh directional impetus.
The USD/CAD pair gains some positive traction during the Asian session on Wednesday and reverses a part of the overnight slump to the 1.3560-1.3555 region, or its lowest level since July 2025. Spot prices reclaim the 1.3600 mark in the last hour amid some repositioning trade heading into key central bank events, though the fundamental backdrop warrants caution for bulls.
The Bank of Canada (BoC) is scheduled to announce its rate decision later today and is expected to keep interest rates on hold, though the case for a cut continues to mount amid mixed signals on the state of the economy and trade uncertainties. This will be followed by the outcome of a two-day FOMC meeting. Investors will look for cues about the US Federal Reserve's (Fed) rate cut path, which will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide some meaningful impetus to the USD/CAD pair.
In the meantime, the USD Index (DXY), which tracks the Greenback against a basket of currencies, stages a goodish recovery from its lowest level since February 2022, touched on Tuesday, though the upside seems limited amid dovish Fed expectations. In fact, investors are still pricing in the possibility that the Fed would cut rates two more times this year. Moreover, US President Donald Trump said on Tuesday that he will soon announce his pick to serve as the Fed Chair, and predicted interest rates would decline after the new chair takes over.
Meanwhile, evolving efforts to fire Fed Governor Lisa Cook revived worries about the central bank's independence. Adding to this, economic and geopolitical risks on the back of US President Donald Trump's decision could act as a headwind for the USD. Furthermore, Crude Oil prices have climbed to a fresh high since October 2025, which could support the commodity-linked Loonie and contribute to capping the USD/CAD pair. This makes it prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out.
Economic Indicator
BoC Interest Rate Decision
The Bank of Canada (BoC) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoC believes inflation will be above target (hawkish), it will raise interest rates in order to bring it down. This is bullish for the CAD since higher interest rates attract greater inflows of foreign capital. Likewise, if the BoC sees inflation falling below target (dovish) it will lower interest rates in order to give the Canadian economy a boost in the hope inflation will rise back up. This is bearish for CAD since it detracts from foreign capital flowing into the country.
Read more.Next release: Wed Jan 28, 2026 14:45
Frequency: Irregular
Consensus: 2.25%
Previous: 2.25%
Source: Bank of Canada
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