Canadian dollar ends 2025 on a high note, but is this the top?
Learn what driving the Loonie into 2026 and why fundamentals and technicals may paint different pictures.
- USD/CAD on track to finish December with gain against USD.
- Central bank policies diverging could give the Loonie more strength in 2026.
- Technical rebound for the Dollar is taking shape, but fundamentals back the Loonie.
It’s been a good month for the Canadian Dollar, with the currency up nearly 2% in December against the dollar with only hours to go until 2026.
The Loonie is looking at a solid year of gains against its southern neighbor, with USD/CAD on track to close the year at a 4.6% loss, its worst since 2019.
Still, much of the Canadian currency’s gains came in the first half of the year before this month. The Canadian economy has brightened recently, with jobs data and readings on gross domestic product (GDP) improving.
Going forward, the Loonie might have more to give in 2026 as the Federal Reserve prepares to cut rates several more times, according to market bets. Meanwhile, the Bank of Canada (BoC) is in a more neutral stance after cutting rates this year.
If markets are right, the Federal Reserve should cut at least two more times in 2026. That should further reduce the U.S. yield premium that Treasuries command over their northern counterparts.
The interest rate differential between the 10-year notes trades around 73 basis points to the US side, but that is down from over 150 basis points at the start of 2025. If the trend continues, it should benefit the Loonie, especially if central banks act as expected.
Technically, USD/CAD looks vulnerable to more upside as short-term momentum builds. The pair overtook the 9-day exponential moving average on Wednesday and is looking for a close above it.
Resistance from prior support that was set back in the August to September timeframe could cap further upside, so the 1.37260 level should be closely watched. A reversal lower would look to retest last week’s monthly low near the 1.365 handle.
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