The Canadian Dollar remains largely unchanged against a stronger US Dollar. Strong Canadian employment figures from late last year had initially boosted the Canadian Dollar. This outlook caused markets to reassess the possibility of Bank of Canada rate cuts, despite ongoing concerns about Federal Reserve easing.
The narrowing of short-term spreads played a key role in the Canadian Dollar’s rise against the US Dollar late last year. Recent trends show stability as the US Dollar faces resistance in the upper 1.38s. This level includes a 50% retracement of the November-December USD decline, a major low from late October, and the 100-week moving average.
Usd Trend Momentum
Trend momentum suggests that the US Dollar could continue its firm stance. There is a potential for the US Dollar rebound to extend to the 1.3950/00 range. USD support remains steady at 1.3810/20. This article corrected earlier references to already-released Canadian employment data for December, for accuracy.
The FXStreet Insights Team curates market observations from experts. These include both commercial notes and additional insights from various analysts inside and outside the organisation.
The strong Canadian jobs data from late last year is giving the CAD some underlying support, which we saw when Statistics Canada reported a gain of 45,000 jobs for December 2025. This has forced us to reconsider how soon the Bank of Canada might cut its 4.25% policy rate. Meanwhile, markets continue to price in the possibility of easing from the US Federal Reserve after last month’s core US CPI came in slightly below expectations.
Strategies for Resistance Levels
Given the US Dollar’s rally is now testing significant resistance in the upper 1.38s, traders should consider strategies that benefit if this ceiling holds. We see this as an opportunity to purchase USD/CAD put options with a strike price around 1.3850 or establish bear call spreads to collect premium. This position is based on the technical barriers, including the 100-week moving average, which are proving difficult to break.
On the other hand, trend momentum suggests the USD could remain firm and push higher towards the 1.3950 level. For those anticipating a breakout, buying call options with a 1.3900 strike price offers a way to profit from a continued USD advance. This move would likely be triggered by any sign of weakness in the Canadian economy or hawkish commentary from the Fed.
With the exchange rate at such a critical juncture, implied volatility may be underpriced ahead of next week’s inflation reports. We believe setting up a long straddle, buying both a call and a put with the same strike price and expiration, could be a prudent move. This strategy will profit from a significant price move in either direction, capitalizing on the current market uncertainty.
Underlying fundamentals from late 2025, such as narrower Canada-US interest rate spreads and stable WTI crude oil prices around $82 a barrel, provide a floor for the Canadian Dollar. These factors argue against a significant or sustained decline in the CAD. Therefore, any move towards 1.4000 in the USD/CAD pair might be viewed as an overextension and a selling opportunity.
