The Canadian Dollar began 2026 on a weaker note, slipping against all major currencies except one. Market sentiment leans slightly bullish for the new year, but momentum remains limited. The Canadian Dollar remains in near-term ranges, opening sluggishly after the holiday period.
Canadian Manufacturing’s PMI Impact
Canadian S&P Global Manufacturing PMI indicated a decrease in activity for the eleventh month, mainly due to tariff-related issues. These tariffs hinder Canadian business operations, resulting in cautious inventory management and contributing to input cost inflation. This situation creates ongoing apprehension among Canadian businesses.
The Canadian Dollar lost slightly against the US Dollar, showing market visuals largely unchanged with persistent tariff concerns impacting both Canada and the US. US manufacturing increased at the end of 2025, but tariff-induced cost pressures and decreasing orders pose sustainability concerns for early 2026. Data releases, including labor reports from both countries on December 9, will be key this year.
USD/CAD traded above the day’s opening with intraday bullishness. Technical indicators point to potential gains, though momentum slowdowns could reduce upside movements. On a daily basis, USD/CAD remains below key EMAs, reflecting a bearish trend with pressure for further lows. Sellers currently maintain control in this market scenario.
The Canadian Dollar has started 2026 weakly, reflecting a manufacturing sector that struggled through the end of 2025. Persistent uncertainty around tariffs is limiting business activity and creating cost pressures. This fundamental weakness suggests that any strength in the Canadian Dollar may be short-lived.
Upcoming Canadian Labor Report
The most important event on our horizon is next week’s dual labor reports from both Canada and the US. Economists are forecasting that Canada added only 5,000 jobs in December, a notable cooling from the 25,000 we saw in November of 2025. A weak Canadian jobs report, especially if paired with a strong US number, would likely push the USD/CAD exchange rate higher.
We must also consider monetary policy, where the Bank of Canada held rates steady in December 2025, citing concerns over these same supply chain issues. This contrasts with signals from the US Federal Reserve, whose own December meeting minutes suggested a continued focus on inflation. This policy divergence currently favors the US dollar.
Given the short-term upward momentum, we could consider buying near-term USD/CAD call options expiring after next week’s employment data. The charts suggest a potential move towards the 50-day moving average near 1.3850 if the data confirms Canadian economic softness. This strategy allows us to profit from a potential upward move while defining our risk.
However, the longer-term daily chart still points to a bearish trend for USD/CAD. If the upcoming rally stalls near that 50-day moving average, it could be an opportunity to initiate bearish positions. We could look at selling call spreads or buying puts to align with the broader downtrend that was in place for much of the fourth quarter of 2025.
With a major data catalyst approaching, an increase in price volatility is very likely. Implied volatility for one-week USD/CAD options has already risen to 8.5%, indicating the market is bracing for a significant move. Buying a straddle would allow us to profit from a sharp price swing in either direction following the employment reports.
Finally, we cannot ignore the price of oil, which is a key driver for the loonie. WTI crude oil has been hovering around $72 a barrel, offering little support for the Canadian currency. This lack of a commodity tailwind reinforces the case for Canadian dollar caution in the immediate weeks ahead.
