The Canadian Dollar (CAD) has continued to decline, reaching the upper 1.38s range after Christmas. This dip is attributed to weak crude oil trends and low risk appetite, paired with the USD’s rebound.
The USD/CAD pair is nearing a resistance zone in the upper 1.38s, linked to historical market movements. Despite supportive factors for the CAD such as spread differentials, the USD has broken past the 200-day moving average, suggesting a potential continuation of its upward momentum.
Potential Market Movements
If the USD exceeds the 1.39 level, it may continue rising towards 1.3950/00. Current support sits at 1.3810/20, which indicates potential areas for retracement.
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We have seen the Canadian dollar weaken steadily since the holidays, pushing the USD/CAD exchange rate into the upper 1.38s. This move is being driven by softer crude oil prices and a broad-based rebound in the US dollar’s strength. The market is now challenging a key resistance area that we identified from the highs back in October of 2025.
The pressure on the loonie is partly due to the trend in energy markets, as we watched WTI crude oil prices fall from over $80 a barrel in late 2025 to hover near $72 this past week. This persistent softness in a key Canadian export continues to create headwinds for the currency. It makes it difficult for the CAD to find support even when other factors, like interest rate differentials, should be more favorable.
Trading Strategies
For traders, this presents an opportunity to use options to manage risk around this resistance level. Given the uncertainty, buying February call spreads, such as purchasing a 1.3850 call and selling a 1.3950 call, could be a prudent strategy. This approach allows for participation in further upside if the US dollar continues to climb, while defining and limiting the initial cost of the trade should the rally stall.
The strength in the US dollar has been reinforced by recent economic data, particularly the robust US jobs report for December 2025 that showed the economy adding 216,000 jobs. This figure far outpaced Canada’s own employment report, which showed a near-stagnant gain of only 100 jobs for the same month. This economic divergence is leading markets to favour the greenback, overpowering the previously supportive Canada-US interest rate spreads.
If we see a sustained break and a daily close above the 1.3900 level, it would suggest the bullish momentum has more room to run. Such a move would be a strong signal to consider strategies that profit from a continued climb towards the 1.3950 and 1.4000 psychological level. Traders could look at buying call options with longer expiries, like March or April, to give the trend time to fully develop.
Conversely, the key support level to watch is around the 1.3810/20 area. A firm rejection from the current highs followed by a break below this support zone would indicate that the US dollar rebound has run its course for now. In that scenario, traders could use put options to hedge long positions or speculate on a move back down towards the mid-1.37s.
