The Canadian Dollar (CAD) is rising, marking its fourth consecutive weekly gain, driven mainly by a weaker US Dollar (USD). The recent performance shows the CAD outperforming other commodity currencies but lagging behind major G10 currencies.
Current equilibrium estimates suggest a fair value slightly above 1.40. A stronger CAD may encourage the Bank of Canada to maintain its current stance in upcoming meetings.
Usdcad Downtrend
The USD/CAD downtrend is becoming established, and a solid close below specific technical levels could further support the CAD. Meanwhile, intraday trading indicates possible moderation in the USD’s decline, although renewed selling pressure may arise as it approaches higher levels.
We’ve now had four straight weeks where the Loonie has gained ground, and the pace at which it has done so—especially when compared to other commodity-linked currencies—stands out. This strength, though, has been more relative than sweeping. Yes, it’s been holding up better than the Aussie or the Kiwi, but among peer currencies, say the Yen or the Euro, it’s still trailing ever so slightly. This isn’t random. Much of it stems from how the US Dollar has been retreating, offering the Canadian Dollar a bit of breathing room.
Fair value models now point to around 1.40 or just north of it as a level where the pair might naturally gravitate when left to fundamentals. So when we talk about whether CAD is overdone or not—it’s increasingly hard to argue that it’s run too far. The Bank of Canada, watching all of this unfold, is unlikely to rush into changing course unless inflation flares up again or wage figures start surprising to the upside. With CAD showing this kind of resilience, paired with slowing domestic indicators, there’s little incentive for them to loosen policy just yet. They’re in a position where doing less may actually do more.
There’s also growing comfort in the broader structural shift in USD/CAD. The downward move doesn’t just look like a soft pullback—it’s developing into something a bit more deeply rooted. A firm weekly close below key levels around 1.3600 would likely cement that view for most market participants. That said, intraday reversals have appeared during quieter sessions, which isn’t unexpected after such a run. These aren’t indications of a broader shift, but they do suggest parts of the market are placing shorter-term bets, probing to see if they can catch a bounce.
Price Action And Policy Expectations
From a tactical point of view, any approach back toward the mid-1.3700s could offer an early opportunity to fade strength. We’re watching supply sit around those zones—a stretch into it without strong supporting data would likely attract sellers again. Also keep an eye on carry dynamics. Overnight index swaps aren’t implying any sharp divergence between policy paths at this stage, so currency moves are more likely to be steered by flows and positioning until some catalyst resurfaces.
What this means practically is that we are entering a stretch where price action might decide more than policy expectations. With no sweeping changes to interest rates on the immediate horizon, derivative traders would do well to stay tactical, fade into overextensions, and lean into direction only once broader ranges are broken cleanly. Patience, in this environment, may pay more than anticipation.
