USD\/CAD remains stable, trading around 1.3880, amidst mixed signals from the US and factors specific to Canada. The Bureau of Labor Statistics indicates US inflation is cooling slowly but not yet complete. December’s CPI increased by 2.7% year-over-year, maintaining market expectations, while core CPI stayed at 2.6%, falling short of predictions for a slight increase. Month-on-month, headline inflation rose by 0.3%, and core inflation by 0.2%, with shelter costs primarily driving monthly price pressures.<\/p>\n
These figures suggest ongoing disinflation, with markets expecting gradual monetary easing from the Federal Reserve. Markets currently assign a 95% probability that the Fed will keep interest rates unchanged in January. In the Canadian context, the CAD gains support from rising oil prices, as Canada is a major crude exporter to the US. WTI US oil prices have increased for four consecutive days, around $61 per barrel, driven by supply concerns and geopolitical tensions. <\/p>\n
USD’s daily percentage movements show strength against the Japanese Yen. In this market environment, the balance between US inflation data and oil-driven CAD support keeps USD\/CAD in a consolidation phase, lacking a strong immediate catalyst.<\/p>\n
Looking back to early 2025, we saw the USD\/CAD pair trading in a tight range around 1.3880, caught between US disinflation and rising oil prices. Now, a year later, the pair is still range-bound, though at a lower level near 1.3450, as these same core themes have evolved but not resolved. The fundamental tug-of-war continues to limit any strong directional momentum.<\/p>\n
On the US side, the disinflation we tracked throughout 2025 has become more stubborn. Yesterday\u2019s data from the Bureau of Labor Statistics showed the Consumer Price Index for December 2025 holding at 2.9%, slightly above the consensus forecast and complicating the Federal Reserve’s path forward. Consequently, CME FedWatch data shows markets are pricing in a 98% chance the Fed will keep rates on hold at its meeting later this month.<\/p>\n
Meanwhile, the Canadian dollar continues to draw support from elevated energy prices, a trend that intensified since last year. West Texas Intermediate crude is trading steadily around $78 a barrel, a notable increase from the low $60s we saw in early 2025, buoyed by ongoing supply discipline from OPEC+ and persistent geopolitical tensions. This strength in oil provides a solid floor for the Canadian currency, preventing significant USD\/CAD rallies.<\/p>\n
This prolonged period of consolidation has suppressed market volatility, with the Deutsche Bank Currency Volatility Index recently touching a 52-week low. For derivative traders, this presents an opportunity to buy options cheaply, as current pricing suggests the market is underestimating the potential for a breakout. We feel that long straddles, which profit from a significant move in either direction, look attractive for contracts expiring in the next six to eight weeks.<\/p>\n
For those with a directional bias, the fundamentals slightly favor Canadian dollar strength. A patient approach of buying out-of-the-money USD\/CAD puts could be a cost-effective way to position for a potential break below the key 1.3400 support level. This strategy would benefit if stubborn US inflation data forces the Fed to remain hawkish longer than the market expects, eventually triggering a risk-off move.<\/p>\n
Given the balanced risks, using option collars is a prudent way to hedge currency exposure over the coming weeks. This strategy of buying a protective put and simultaneously selling a call option to fund it establishes a defined trading range. It allows for participation in a limited move while protecting against an adverse sharp swing in the exchange rate.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" USD\/CAD holds steady near 1.3880 as US inflation cools and Canadian oil prices lend support.<\/p>\n","protected":false},"author":62,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-39050","post","type-post","status-publish","format-standard","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\/39050","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=39050"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/39050\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=39050"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=39050"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=39050"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}