The Canadian Dollar (CAD) has gained strength against the US Dollar (USD). This comes after stronger-than-expected Canadian Retail Sales and a weaker USD. Currently, USD/CAD is trading at about 1.3767, marking a fifth day of decline. According to Statistics Canada, Retail Sales rose by 1.3% in November, beating the forecast of 1.2% and bouncing back from a 0.3% drop in October. Sales, excluding autos, increased by 1.7%, also exceeding the predicted 1.2%. This rise in retail activity supports the Bank of Canada’s (BoC) current strategy. Recent inflation data shows a decrease in monthly pressure, though it remains above the 2% target. The Consumer Price Index (CPI) rose to 2.4% annually in December, while the core CPI slightly fell to 2.8%. The BoC is expected to keep its policy rate steady at 2.25% in its upcoming meeting.

Oil Prices And Dollar Challenges

Steady oil prices, with West Texas Intermediate at around $61 per barrel, are also helping the CAD. On the other hand, the US Dollar is facing difficulties due to policy uncertainties and worries about Federal Reserve independence. Initial PMI data showed mixed results, and there is rising anticipation for the upcoming University of Michigan Consumer Sentiment survey and the Fed’s monetary policy meeting. The recent uptick in Canadian retail sales signals that the economy is stronger than anticipated. This strength, combined with the ongoing weakness of the US dollar, suggests that the decline of USD/CAD is likely to continue in the short term. Traders looking to capitalize on this trend should see potential benefits. This perspective is further supported by employment data indicating that Canada added an impressive 45,000 jobs in December 2025, exceeding expectations. In contrast, the latest US figures show a slowdown in Q4 2025 GDP growth to an annualized 1.8%, indicating a widening economic gap between the two countries. This fundamental difference is a key factor affecting the currency pair.

Hawkish Bank Of Canada

The Bank of Canada is expected to maintain its policy rate at 2.25% next week, but the strong data may lead to a more hawkish tone in their statement. The market is now anticipating a higher chance of a BoC rate hike later in 2026, similar to their actions during the 2022-2023 hiking cycle. This contrasts with the Federal Reserve, which might need to consider easing if US economic data continues to weaken. Additional support for the Canadian dollar comes from rising energy prices, an important factor for commodity-linked currencies. West Texas Intermediate crude has been climbing towards $78 a barrel by the end of 2025, significantly higher than the previous $61. This price surge provides further support for the Loonie against the USD. Given these conditions, we recommend strategies that take advantage of a continued drop in USD/CAD. Buying put options on the pair works as a defined-risk method to benefit from this expected decline in the coming weeks. The trend appears to point downward, especially with robust Canadian economic data and rising commodity prices as supporting factors. Create your live VT Markets account and start trading now.

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