The Canadian Dollar (CAD) is under pressure due to low Oil prices and a strong US Dollar. By Tuesday, the USD\/CAD pair traded around 1.3780 as the US Dollar Index hovered at 98.57. Meanwhile, US PMI data indicated slower growth momentum, with Service PMI falling to 52.5 in December from 54.1 in November.<\/p>\n
Composite PMI also dropped to 52.7 from 54.2, revealing slower growth in services and manufacturing sectors. New order volumes saw their weakest expansion in about twenty months. Concerns about US growth were raised despite expectations that lower interest rates could enhance demand. <\/p>\n
Fed officials maintain a cautious outlook, with some suggesting rate cuts may be necessary to support economic growth. In contrast, the Canadian economy sees limited support from domestic economic data and Oil prices, with West Texas Intermediate trading near $58.00.<\/p>\n
Attention now turns to upcoming US Nonfarm Payrolls and Canada labour data, which are expected to influence future policy directions for the Federal Reserve and Bank of Canada. The health of the US economy, Oil prices, and inflation are critical factors affecting the CAD value, with broader economic data impacting currency strength. Economic strength may lead to higher interest rates and a stronger Canadian Dollar.<\/p>\n
The jobs reports from last Friday have confirmed our view of a slowing North American economy at the close of 2025. The US Nonfarm Payrolls came in weaker than expected at 155,000, and more concerningly, Canada posted a net loss of 5,000 jobs. This data gives both the Federal Reserve and the Bank of Canada a clear path to begin cutting interest rates in the first quarter.<\/p>\n
On the US side, this slowdown is adding to the cautious tone from Fed officials we saw in December. We can see this shift in the derivatives market, where Fed funds futures now imply an over 80% probability of a rate cut by the March 2026 meeting, up from around 50% just a month ago. This suggests that the US Dollar’s strength may soon begin to fade as monetary policy loosens.<\/p>\n
However, the situation for the Canadian Dollar appears more troubled, given the combination of a weakening labour market and subdued oil prices. With West Texas Intermediate crude struggling to stay above $58 a barrel, a price point that puts significant pressure on the Canadian energy sector, the Bank of Canada has more reason to act urgently. Historically, when we’ve seen Canadian jobs and oil prices fall in tandem, as they did during parts of 2023, the BoC has been quick to signal a dovish policy shift.<\/p>\n
This creates a scenario where the Bank of Canada may be forced to cut interest rates sooner and more aggressively than the Federal Reserve. As a result, we favour strategies that profit from a rising USD\/CAD exchange rate over the next several weeks. The Canadian Dollar is likely to weaken more significantly than its US counterpart.<\/p>\n
Given this outlook, we are positioning by purchasing USD\/CAD call options with a strike price around 1.3900 expiring in February and March 2026. This allows us to capitalize on the expected upside in the currency pair with a defined risk. The increasing uncertainty around central bank actions has also pushed up implied volatility, making this an opportune time to establish these positions before the market fully prices in a more aggressive BoC.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Canadian Dollar weakens amid low oil prices, strong US Dollar, and slowing US and Canadian economic growth.<\/p>\n","protected":false},"author":62,"featured_media":16959,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-38414","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/38414","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=38414"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/38414\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16959"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=38414"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=38414"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=38414"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}