**USD/CAD Declines Toward 1.3855 Amid Fed Rate Cut Speculation and BoC’s Steady Hawkish Tone**
*Original reporting by FX Leaders (December 10, 2025)*
*Adapted and expanded for content by AI Writer*
The US dollar is under renewed pressure against major global currencies, and in particular, the USD/CAD pair is showing a downward trend. On December 10, 2025, the USD/CAD pair slipped as low as 1.3855 in intraday trading, marking a notable retreat amid divergent monetary policies between the US Federal Reserve (Fed) and the Bank of Canada (BoC).
This recent decline in USD/CAD reflects growing investor confidence in a series of interest rate cuts by the Federal Reserve over the coming months, while the Bank of Canada has indicated it intends to hold its benchmark interest rate steady for an extended period. The contrast in outlook between the two central banks has fueled volatility in the forex market and is reshaping the trajectory for North America’s key currency pair.
## Key Highlights
– USD/CAD dips to 1.3855 in early trading sessions on December 10, 2025.
– The US dollar weakens broadly amid growing expectations of multiple Fed rate cuts in 2026.
– The BoC adopts a more cautious and hawkish tone, signaling no immediate moves to ease.
– 10-year US Treasury yields fall below key levels, adding pressure to the dollar.
– Canadian economic resilience strengthens the loonie’s position.
– Geopolitical and commodities market trends also affect CAD sentiment.
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## Macro Drivers Behind USD/CAD Movement
### 1. Federal Reserve’s Shift Toward Policy Easing
Market sentiment around the Fed’s next policy moves has undergone a noticeable shift heading into the final stretch of 2025. With signs of slowing inflation and emerging weakness in certain sectors of the US economy, investors and analysts are pricing in at least two rate cuts by mid-2026.
– According to CME Group’s FedWatch Tool, futures contracts now imply a 75% probability of a rate cut as early as March 2026, with further cuts potentially in June and September.
– Recent data showed US CPI inflation easing to an annual rate of 3.0%, closer to the Fed’s long-run target.
– Most members of the Federal Open Market Committee (FOMC) have adopted a cautious tone, acknowledging the balancing act between maintaining tight labor markets and avoiding overtightening.
Falling Treasury yields further support the probability of easing:
– The 10-year US Treasury note yield dropped to 4.12%, while the 2-year yield slipped to around 4.35%.
– Lower yields tend to weigh on the US dollar by reducing the attractiveness of dollar-denominated assets to foreign investors.
This dovish pivot from the Fed has weakened the greenback relative to most of its counterparts, including the Canadian dollar.
### 2. Bank of Canada Maintains Hawkish Stance
In contrast to the US central bank, the Bank of Canada signaled at its latest meeting that it remains in “wait-and-see” mode. Governor Tiff Macklem noted that while inflation in Canada has started to ease, core components are still elevated, justifying a restraint against premature easing.
– The BoC kept its overnight lending rate unchanged at 5.00% for its fifth consecutive meeting.
– Policymakers indicated that rate hikes are unlikely without a serious inflationary surprise, but maintained a vigilant tone on inflation persistence.
This divergence in policy has made the Canadian dollar relatively stronger against the USD:
– The BoC’s conservative position continues to support Canadian bond yields.
– Forex traders view the BoC’s restraint as providing a near-term tailwind for the loonie relative to a softening greenback.
### 3. Canadian Economic Resilience
Canada’s economic data has surprised analysts with its relative strength, particularly in sectors such
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