The Canadian Dollar (CAD) has gained ground, reflecting broader pressure on the US Dollar (USD). Scotiabank reports that CAD has faced challenges due to weaker oil prices and unchanged CAD-supportive spreads.
The post-Christmas rally of the USD shows signs of stalling. Spot losses bring the USD closer to a fair value of 1.3857, suggesting potential for CAD improvement if the USD weakens further.
Intraday Price Signals
Intraday price signals indicate a potential halt or reversal of the USD’s recent upward trend. A price pattern forming on the daily chart may strengthen USD resistance around the low/mid 1.39s. Current support stands at 1.3850.
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We are seeing the US dollar’s strong run from late last year begin to stall. This is creating an opening for the Canadian dollar, which had been under pressure. Traders should note this potential shift in momentum for the USD/CAD pair.
Significant Resistance Encounter
The pair is encountering significant resistance in the low-to-mid 1.39s, suggesting the upside for the US dollar is becoming limited. A daily chart pattern is forming that reinforces this view. We see initial support for the pair holding around the 1.3850 level.
This view is supported by a recent uptick in WTI crude oil prices, which have climbed over 4% to near $75 per barrel since the start of the year, providing a fundamental tailwind for the Canadian dollar. Furthermore, the US jobs report for December 2025 came in softer than expected, with non-farm payrolls at 165,000 against a consensus of 190,000. This data point eases pressure on the Federal Reserve and weighs on the US dollar.
Given this outlook, traders could consider buying Canadian dollar call options to bet on further appreciation. Alternatively, selling out-of-the-money USD/CAD call spreads with strike prices above 1.3950 would be a way to profit if the pair moves sideways or trends lower. These strategies are positioned to benefit from a reversal of the trend we saw at the end of 2025.
We saw a similar pattern back at the start of 2024, when a year-end US dollar rally faded in the first quarter, leading to a period of strength for commodity-linked currencies like the CAD. History suggests these early-year reversals can be potent. Traders should be mindful of this seasonal tendency.
For those with existing exposure to a weaker Canadian dollar, this could be a window to implement hedges. Buying near-term USD/CAD call options can protect against a surprise reversal where the US dollar regains its footing. This would be a prudent move to manage risk if this stall proves to be temporary.
