The Canadian Dollar traded in narrow ranges against the US Dollar on Monday, starting the final trading week of 2025 with little direction as year-end liquidity continued to thin. The loonie held near familiar levels after a steady run of gains through the latter part of the fourth quarter, even as overall market participation remained subdued.
Currency markets have largely paused ahead of the holiday period, with investors reluctant to place fresh bets before the calendar turns. Despite the slowdown, the Canadian Dollar has remained resilient against the greenback, supported by interest rate dynamics rather than near-term economic data.
Policy divergence between the Bank of Canada and the Federal Reserve continues to dominate sentiment. The BoC has limited flexibility after cutting interest rates aggressively through 2024 and 2025, delivering nine reductions in total, including consecutive jumbo cuts late last year. With rates already pared back sharply, Canadian policymakers have little room left to ease further.
In contrast, the Federal Reserve is widely expected to face increasing pressure to accelerate rate cuts over the next two years. Markets are pricing in a more accommodative US policy path, a factor that has capped US Dollar strength and helped keep USD/CAD anchored within a well-worn range.
With no major Canadian data releases on the immediate horizon, trading conditions are likely to remain quiet into year-end. Directional moves are expected to re-emerge in early 2026 as liquidity returns and investors reassess central bank policy expectations on both sides of the border.
