The Canadian Dollar (CAD) has mirrored the broader trends of the US Dollar (USD) during the holiday period, with limited domestic influences affecting this movement. Technical indicators now suggest that the USD’s rebound might be losing its drive, potentially paving the way for CAD appreciation if upcoming Canadian data, particularly Friday’s employment report, demonstrates economic resilience.
The USD/CAD rally appears to be losing steam, with intraday movements continuing to follow the overarching USD trend. CAD-specific news has been minimal over the holidays, though the December S&P Global Manufacturing PMI saw a slight increase to 48.6. The forthcoming days will feature notable Canadian data, including PMIs, trade, and employment figures, which could impact CAD’s performance against the USD.
Better Than Anticipated Economic Data
Better than anticipated economic data previously allowed CAD to gain ground against the USD, and it might do so again if data continues to exhibit relative strength, particularly the upcoming employment report. Current intra-day price action suggests the USD’s post-December 26th uplift is encountering resistance, needing to surpass 1.3810 to maintain its New Year rally. Current USD support is at 1.3750 and 1.3725.
As we begin 2026, the Canadian dollar is closely mirroring the US dollar’s movements, a common pattern during periods of thin holiday liquidity. Now that traders are returning, we are seeing signs that the US dollar’s recent strength may be losing its momentum. This could create an opportunity for the CAD, especially if domestic economic data continues to show resilience.
The case for a stronger CAD is being supported by fresh economic figures. Canada’s most recent jobs report for December 2025 showed a surprisingly robust gain of 45,000 positions, significantly beating the market consensus of a 15,000 increase. This kind of outperformance suggests the Canadian economy has a stronger underlying pulse than many anticipated.
Current Data Divergence
We saw a similar situation unfold in early 2025, where the USD/CAD pair was trading high after the new year. Stronger-than-expected Canadian data at that time helped shift the narrative, leading to a notable rally in the loonie against the greenback. That historical precedent from last year suggests we should pay close attention to the current data divergence.
For derivative traders, this environment suggests positioning for potential CAD strength, which means a move lower in the USD/CAD pair. Buying put options on USD/CAD could be a prudent strategy, as it offers downside exposure with a defined risk. With implied volatility still settling after the holidays, these options might be attractively priced.
However, the divergence between the two economies is not yet extreme. The latest US jobs report, while slightly missing forecasts, still showed a healthy addition of 190,000 jobs, indicating the US economy remains on solid footing. A surprise uptick in US inflation or hawkish talk from the Federal Reserve could quickly reverse the USD’s recent softness.
From a technical standpoint, the USD’s recent rebound appears to be struggling to find new buyers. We are watching key levels for confirmation; a decisive break below 1.3500 could signal further losses for the US dollar. Conversely, the greenback would need to push back above the 1.3620 area to suggest its rally is resuming.
