Scotiabank strategists Shaun Osborne and Eric Theoret said the Canadian dollar was modestly softer as the US dollar stabilised. They said the broader bearish trend for USD/CAD remains in place.
They noted Canadian Consumer Price Index data came in softer than expected. They said this gives policymakers more time to assess the jump in energy prices.
They referred to the Q1 Business Outlook Survey and said it shows resilient inflation expectations. A record number of respondents expected inflation to stay in the 2–3% range.
They said the Bank of Canada is expected to hold the target rate at 2.25% at the 29 April policy decision. They also said policy could tighten modestly by year-end.
On technical levels, they cited resistance around 1.3750, linked to the 40-day moving average, mid-March highs, and former support. They listed US dollar support at 1.3625/30 and 1.3500/25.
Looking back at this time in 2025, the prevailing view was that the US dollar would weaken against the Canadian dollar. This was based on the idea that the broader bearish trend in USD/CAD was strong and intact. The analysis then pointed to significant resistance around the 1.3750 level.
The situation has evolved significantly since then, as the Bank of Canada is now signaling a different path. The Bank recently held its key interest rate at 3.50% but has indicated a potential rate cut as early as June, citing slowing economic growth. This contrasts sharply with the modest tightening bias we observed this time last year.
Meanwhile, monetary policy divergence with the United States is becoming a major driver for the currency pair. Recent data showed the US economy added a surprisingly strong 285,000 jobs last month, keeping the Federal Reserve on a hawkish footing and delaying any talk of rate cuts. This growing gap in interest rate expectations is putting upward pressure on USD/CAD.
Inflation dynamics have also shifted from what we saw in 2025. While last year’s softer CPI print gave the BoC breathing room, the latest report for March 2026 showed inflation remains sticky at 2.9%, especially due to shelter costs. However, the market appears more focused on the central bank’s forward guidance for easing rather than the current inflation reading.
For derivative traders, this environment suggests a shift away from the bearish USD/CAD stance of 2025. We believe strategies that profit from a rising USD/CAD, such as buying call options or establishing bull call spreads, should be considered to capitalize on the policy divergence. These positions offer defined risk while providing upside exposure to a stronger US dollar.
The prospect of upcoming rate cuts from the Bank of Canada introduces significant event risk and will likely increase volatility. We are seeing implied volatility on USD/CAD options rise ahead of the next BoC meetings. Traders should therefore structure positions that can benefit from these price swings while carefully managing their premium costs.
