The Canadian Dollar has remained steady against the US Dollar, showing a slight increase as it consolidates after a decline in December. A recovery in oil prices is providing some support to the Canadian currency, while interest rate differentials are narrowing, which recently favoured a weaker CAD.
USD/CAD’s rally appears to have paused below key technical resistance levels, including trend resistance at the 50-day moving average of 1.3887 and the psychologically important 1.39 level. The RSI is declining from recent highs, indicating easing momentum.
Near Term Domestic Risks
Near-term domestic risks seem limited, with no scheduled Bank of Canada speeches before the next rate decision. The currency is expected to remain range-bound, moving between 1.3820 and 1.3920.
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The Canadian dollar is holding its ground against the US dollar, trading in a narrow range after falling from its late December highs. We are seeing a recovery in oil prices, which is giving the CAD some underlying support. Critically, interest rate differentials are also turning in our favor, tightening after a period of widening late last year.
The Bank of Canada is now expected to be more cautious about cutting rates after Canada’s latest CPI reading for December 2025 came in at 2.9%, slightly above expectations. This contrasts with signals from the US Federal Reserve, which appears more prepared to ease policy. At the same time, WTI crude has stabilized above $85 per barrel, adding to the positive outlook for the loonie.
Historical Patterns Observed
Looking back, we saw the USD/CAD rally stall in late 2025 just below the key 1.3600 resistance level, which aligns with the 200-day moving average. For derivative traders, this suggests that call options with strikes above 1.3600 could be attractive to sell, capitalizing on the strong resistance. Momentum indicators like the RSI have rolled over from overbought territory, signaling that the upward push is losing steam.
Given this setup, we see a near-term range for the pair between 1.3350 and 1.3550. Traders could consider establishing put option spreads to position for a gradual move lower toward the 1.3350 support level. This strategy limits risk while providing exposure to potential CAD strength leading into the Bank of Canada’s next meeting on January 25th.
We also note that historical patterns often show the Canadian dollar strengthening toward the end of January. This seasonal tendency provides an additional tailwind for strategies that are bullish on the CAD.
