The Canadian Dollar (CAD) has returned to a narrow trading range after a slight drop, influenced by strong Canadian job data. Scotiabank’s strategists observed that market positioning was unsettled due to unexpected employment figures.
The USD/CAD rate is encountering resistance near 1.39. There was an exaggerated response in Canadian yields, which is correcting, and yields are expected to settle higher. The Bank of Canada remains inactive, with predictions of a rate hike in late 2026. Current fair value for the spot rate is estimated at 1.3835.
Impact Of Tariff Threats On CAD
President Trump’s threat to impose tariffs on Canadian fertiliser did not affect CAD. Fertiliser prices are increasing, with high demand and limited domestic production alternatives. Technical analysis suggests that any near-term losses have likely been reached, with support found around 1.38.
Short-term price actions show a bullish signal at an intraday low, halting USD losses. While USD may regain some strength temporarily, firm resistance is predicted at 1.3890/00. Further losses toward the lower 1.37s are anticipated, indicating a possible reversal in the USD’s bullish trend.
The Canadian dollar has stabilized after a volatile session last week, which was driven by unexpectedly strong employment data. The Canadian economy added approximately 60,000 jobs in November, far surpassing the consensus forecast of 15,000 and catching many market participants on the wrong side of the trade. This strength briefly pushed the USD/CAD pair lower before it found its footing again.
We believe that bond yields may have overreacted to the news and will likely settle at these new, slightly higher levels. The Bank of Canada, having held its policy rate at 3.25% in its December 3rd announcement, appears to be firmly on hold, with our analysis of the swaps market pointing to a potential rate hike much later in 2026. Given the recent data, our fair value estimate for the USD/CAD cross sits around 1.3835.
Technical Analysis And Strategies
Recent threats from the US administration regarding tariffs on Canadian fertilizer are unlikely to impact the currency meaningfully. Fertilizer prices have already been rising amid tight global supply, a trend seen since the supply chain disruptions of the early 2020s, and there is little capacity for the US to substitute these imports quickly. Therefore, we view these comments as political posturing with minimal economic weight for now.
From a technical standpoint, the dollar’s drop against the loonie seems to have exhausted itself around the 1.3800 level. Short-term signals suggest a minor corrective bounce for the US dollar is possible, so traders should be cautious about initiating aggressive bearish positions on the pair immediately. We see significant resistance forming near the 1.3900 mark, which should cap any immediate strength.
This suggests a strategy of selling out-of-the-money USD call options with short-term expiries to collect premium from this expected resistance. Looking further out over the next several weeks, the broader momentum appears to be turning against the US dollar’s long-running bull trend. A move toward the low-to-mid 1.37s seems likely, making longer-dated CAD call options with January 2026 expiries an attractive way to position for this anticipated weakness.
We are seeing a market shift from the interest-rate-driven volatility that defined 2022 and 2023. Now, with most central banks in a holding pattern, strong fundamental data like employment reports are having a more pronounced and lasting impact on currency valuations. This suggests that the underlying economic health is re-emerging as a primary driver for foreign exchange movements.
