USD/CAD is holding steady near the 1.3900 mark, thanks to strong US economic data indicating that the Federal Reserve might keep interest rates the same. In November, US Retail Sales rose by 0.6% to $735.9 billion, outperforming expectations after a slight decline of 0.1% the month before. The Canadian Dollar (CAD), which is closely linked to commodities, is benefiting from rising WTI Oil prices due to ongoing tensions in Iran. The USD/CAD pair is trading around 1.3890 during the Asian session. Positive US economic signs, including a 3% increase in the Producer Price Index (PPI) year-over-year in November, are boosting the US Dollar. The US Unemployment Rate dropped to 4.4% in December, supporting the view that US interest rates will remain stable. Because of this, Morgan Stanley has pushed its predictions for interest rate cuts from January and April to June and September.

Factors Influencing CAD

The Canadian Dollar gains strength from Oil, its largest export, with WTI prices around $60.20. Tensions in Iran are pushing Oil prices higher, which bolsters the CAD. The US economy greatly affects the Canadian Dollar, as the two economies are closely connected. Interest rates, inflation, and trade balances are some factors that also impact the CAD value. The solid US economic data at the end of last year gives the Federal Reserve a strong reason to postpone any interest rate cuts. The November retail sales report showed a 0.6% increase and the positive December jobs report lowered unemployment to 4.4%. This economic strength is likely to keep the US Dollar strong against currencies like the Canadian Dollar. This scenario has changed market expectations, with fed funds futures showing a much lower chance for a rate cut in the first half of this year. This trend started late in 2025 when major banks revised their forecasts, similar to 2023 when the market anticipated a policy shift that the Fed wasn’t ready to enact. In early 2026, steady inflation rates—like the core CPI holding at 3.1% year-over-year—support this ongoing trend.

Trading Strategy with USD/CAD

For derivative traders, the current situation offers an appealing setup in USD/CAD. While the pair remains stable near 1.3900, this could be temporary since Fed policy has a strong influence. The current low implied volatility makes options strategies look attractive, yet there is a clear directional trend becoming apparent. The main strength of the Canadian dollar comes from oil prices, with West Texas Intermediate now exceeding $62 per barrel amid geopolitical tensions in the Middle East. Recent reports indicate increased shipping disruptions in the Strait of Hormuz, adding to crude price stability. This support for the loonie is what keeps USD/CAD from significantly rising. Given these fundamentals, we view any declines in the USD/CAD exchange rate as a chance to buy. The Federal Reserve’s firm stance on interest rates offers a more stable advantage for the US Dollar compared to the fluctuating nature of oil prices for the Canadian Dollar. Traders might consider using long-dated call options, such as those expiring in March or April 2026, to prepare for a potential rise above the 1.4000 level while minimizing downside risk. Create your live VT Markets account and start trading now.

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