The USD/CAD pair has seen an increase, trading near 1.3770 as the US Dollar strengthens during the European trading session. The pair has risen by 0.25% as the Canadian Dollar struggles in an adverse market environment.
Geopolitical Issues Affect Market
The US Dollar Index shows a 0.2% increase, reaching near 98.60 points. Geopolitical issues involving a US strike on Venezuela have made the market risk-averse.
Upcoming economic data like the US Nonfarm Payrolls and ISM Manufacturing PMI are anticipated this week. The ISM Manufacturing PMI for December is projected to reach 48.3, a slight rise from November’s 48.2.
Technically, USD/CAD is trading at 1.3768 on the daily chart. The 20-day EMA sits at 1.3765, and a daily close above may indicate a short-term base. The price is testing support at the 61.8% retracement.
A sustained move above this level could lead to a rise towards the 50% retracement at 1.3840, while failure to maintain support may keep risk to the downside. The RSI at 46 is recovering but below the 50 midline, indicating possible recovery limitations or reinforcement above 50.
With USD/CAD rallying for a fifth day, the immediate driver is a flight to safety in the US dollar following geopolitical events in Venezuela. This risk-averse environment has put pressure on commodity currencies like the Canadian dollar. Traders should watch if this sentiment continues to dominate market action in the coming days.
Key Economic Indicators
Today’s main event is the ISM Manufacturing PMI data for December 2025, expected to show continued contraction at 48.3. This is not new, as we saw the manufacturing sector struggle for most of 2025, with data consistently below the 50-point mark for over a year. A number significantly below expectations could increase recession fears and paradoxically boost the safe-haven dollar further.
Looking ahead this week, the Nonfarm Payrolls report will be the most significant data release. We have seen surprising resilience in the US labor market throughout the last quarter of 2025, with job growth consistently beating forecasts. Another strong report would reinforce the view that the Federal Reserve may be slower to cut interest rates than other central banks.
The Canadian dollar’s weakness is also tied to domestic factors, including stagnant WTI crude oil prices, which hovered in the low $70s range for much of late 2025. This, combined with what we perceived as a more cautious tone from the Bank of Canada in its December meeting, creates a fundamental headwind for the loonie. This divergence in central bank outlooks is a key factor supporting a higher USD/CAD.
From a derivatives perspective, the pair is at a critical inflection point around the 1.3770 level. If the price can hold and close above this area, it suggests a near-term bottom is in, making call options with a strike price near 1.3840 an interesting consideration. However, a failure to hold this level would keep the bearish bias intact, making put options more attractive if the price slips back below the 20-day average.
