**********On Wednesday, January 31st, global market attention focused on the interest rate decision of the Bank of Canada (BoC). Currently, the US dollar is trading at 1.4435 against the Canadian dollar, with a daily increase of 0.29%, and the Canadian dollar continues to be under pressure. The market generally expects the Bank of Canada to cut interest rates for the sixth consecutive time, but the magnitude of this rate cut may narrow to 25 basis points, lowering the benchmark interest rate from 3.25% to 3.00%. This expectation is closely related to Canada's weak inflation, slowing economic growth, and divergence from US monetary policy.

Market background: The Canadian dollar is weak,Expected interest rate cutsDominant emotions

Since October last year, the Canadian dollar has continued to weaken against the US dollar, mainly due to the dual pressure of market risk aversion triggered by Trump's trade remarks and weak domestic economic data in Canada. After hitting an annual low above 1.4500 in mid December last year, the US dollar against the Canadian dollar entered a consolidation phase, but the overall trend still leans towards a downward trend. Despite recent attempts to stabilize the Canadian dollar, there is insufficient rebound momentum under pressure from expectations of interest rate cuts by the Bank of Canada.

Canada's December inflation data further intensified market expectations for central bank easing policies. Data shows that the overall year-on-year growth rate of CPI in December fell to 1.8%, marking the second consecutive month of decline and below the central bank's target level of 2%. Although the core CPI has slightly rebounded, it has not yet reached the central bank's inflation target. This data provides a basis for the Bank of Canada to further cut interest rates.

Fundamental Analysis: Economic Slowdown and Policy Differentiation

The Bank of Canada's expectation of a rate cut is not an isolated event, but a comprehensive consideration based on multiple economic fundamentals. Firstly, there is a clear trend of slowing economic growth in Canada. In the fourth quarter of last year, the GDP growth rate approached the lower limit of the central bank's previous forecast, indicating a weakening of economic momentum. In addition, there are signs of softening in the labor market, further exacerbating the downward pressure on the economy.

Secondly, the divergence in monetary policies between Canada and the United States has also become a focus of market attention. Although the Federal Reserve kept interest rates unchanged at its January meeting, the market generally expects it to maintain a tightening policy throughout the year. In contrast, the Bank of Canada has cumulatively cut interest rates by 150 basis points since October last year, indicating a clear policy path towards easing. This policy divergence has led to sustained pressure on the Canadian dollar against the US dollar.

The Bank of Canada revealed in its meeting minutes in December last year that the decision to cut interest rates by 50 basis points was not unanimously passed, and some members preferred a smaller rate cut. This indicates that the divergence within the central bank regarding policy intensity is increasing. This meeting may continue this trend by narrowing the rate cut to 25 basis points to balance the risks of economic downturn and inflationary pressures.

Technical analysis: US dollar against Canadian dollar or testing key resistance

Technically speaking, the US dollar against the Canadian dollar has continued to rise since October last year and reached a 2025 high of 1.4516 on January 21. At present, the exchange rate is consolidating along the recent range, and the market's focus has shifted to the 2020 high of 1.4667. If the Bank of Canada releases further easing signals, the US dollar may break through this key resistance level against the Canadian dollar.

On the other hand, if the central bank expresses a hawkish stance, the Canadian dollar may receive short-term support. On the downside side, the 2025 low of 1.4260 and the 55 day and 100 day moving averages (located at 1.4226 and 1.3989, respectively) will become key support levels.

Future outlook: Policy path and economic data are key factors

Looking ahead, the policy path of the Bank of Canada will continue to dominate the trend of the Canadian dollar. Renowned institutional analysts pointed out that as interest rates gradually move out of the "restrictive" range, the pace of future interest rate cuts may be more gradual and more dependent on the performance of economic data. The market generally expects that the Bank of Canada may lower its benchmark interest rate to a slightly stimulating level of around 2% within the year.

In addition, US policy trends will also have a significant impact on the Canadian dollar. Trump's tariff remarks and the performance of US economic data may exacerbate market volatility, further amplifying the depreciation pressure on the Canadian dollar.

Overall, the interest rate decision and policy statement of the Bank of Canada will be a key driving factor for the short-term trend of the Canadian dollar. If the central bank releases further easing signals, the Canadian dollar may continue its weak trend; On the contrary, if the stance is hawkish, the Canadian dollar may experience a short-term rebound. Investors need to closely monitor the performance of the central bank's policy statements and subsequent economic data to grasp the market rhythm.