The Canadian Dollar rose against the US Dollar at the beginning of the week, with USD/CAD dropping by 0.65%. The pair was around 1.3560, showing a downward trend after breaking a long-term uptrend. The Canadian Dollar gained strength following a strong jobs report that lowered the unemployment rate to 6.5%. The Bank of Canada’s (BoC) cautious approach to monetary policy also supported the currency. On Monday, USD/CAD fell below 1.3600, while 1.3680 served as resistance due to reduced short-term buying interest.

Key Factors Affecting The Canadian Dollar

Several factors influence the Canadian Dollar, including the BoC’s interest rate choices, oil prices, economic health, inflation, and trade balance. Typically, higher interest rates and rising oil prices boost the CAD. The BoC adjusts interest rates to keep inflation between 1-3%, which also affects the currency. Macroeconomic data plays a crucial role, where strong indicators like GDP, PMIs, and employment numbers are favorable for the CAD. A solid economy can attract foreign investments and prompt interest rate hikes by the BoC, strengthening the currency. Conversely, weak economic data may lead to a decline in the CAD. Considering the current bearish trend, the US Dollar is weakening against the Canadian Dollar. The pair is trading significantly below key moving averages, reinforcing the downward trend that began when it broke the long-term uptrend in 2025. This indicates that traders should consider strategies that benefit from a further decline in USD/CAD. Given the ongoing downward pressure, buying put options may be ideal. The recent failure to break through the 1.3700 resistance level and the drop below 1.3600 indicates that bearish momentum is increasing. Targeting options around the 1.3500 support zone or even lower, towards the January 30 low of 1.3480, seems reasonable for the coming weeks.

Fundamental Support For Canadian Dollar Strength

This outlook is backed by strong fundamental factors, especially after the recent Canadian jobs report indicated a drop in the unemployment rate to 6.5%. This performance makes it unlikely that the Bank of Canada will lower interest rates soon, which helps to support the Canadian Dollar. The chances of a rate cut at the Bank of Canada’s March 5th meeting have dropped below 20%, a significant change from earlier this year. Additionally, the price of crude oil, a major Canadian export, is a significant advantage. WTI crude has been rising, recently trading above $86 per barrel, its highest point in four months. Historically, when oil prices stay above $80, like they did in late 2024, the Canadian Dollar tends to strengthen. Meanwhile, recent US data is weighing down the Greenback. The January inflation report came in slightly lower than expected at 2.8%, which has sparked speculation that the Federal Reserve may soon cut rates. This difference in policy, with a cautious Bank of Canada and a possibly easing Fed, should push USD/CAD lower. To manage risk, we should closely monitor the 1.3680-1.3710 zone as a key resistance area. If the price unexpectedly moves above this level, it could challenge the bearish outlook. Therefore, using short-dated call options with a strike price near 1.3750 can serve as a low-cost hedge against any sudden market shifts. Create your live VT Markets account and start trading now.

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