The Canadian Dollar (CAD) is now trading within a narrow range after a small drop caused by strong job data in Canada. Analysts from Scotiabank noted that market positioning was shaken by unexpected employment figures. The USD/CAD exchange rate is facing resistance close to 1.39. Canadian bond yields initially reacted too strongly but are now correcting, with an expectation that yields will settle at higher levels. The Bank of Canada is not changing rates, with a potential increase predicted for late 2026. The current fair value for the exchange rate is around 1.3835. President Trump’s threat to impose tariffs on Canadian fertilizer hasn’t influenced the CAD. Fertilizer prices are rising due to high demand and limited production options available domestically. Technical analysis suggests that any short-term losses have likely been reached, with support around 1.38. In the short term, price activity shows positive signals after an intraday low, stopping the USD losses. While the USD might regain some strength temporarily, strong resistance is anticipated at 1.3890/00. Additional losses down to the lower 1.37s are likely, indicating a possible change in the USD’s recent bullish trend. The Canadian dollar has stabilized after a turbulent session last week, which was sparked by unexpectedly strong employment data. The Canadian economy added about 60,000 jobs in November, greatly exceeding the forecast of 15,000, which surprised many in the market. This strength briefly lowered the USD/CAD pair before it bounced back. We think that bond yields may have overreacted to this news and will likely stabilize at slightly higher levels. The Bank of Canada kept its policy rate at 3.25% in its December 3rd announcement and seems to be holding steady, with our analysis indicating a potential rate hike much later in 2026. Based on the recent data, we estimate the fair value for the USD/CAD exchange rate at around 1.3835. Recent threats from the US government about tariffs on Canadian fertilizer probably won’t impact the currency significantly. Fertilizer prices have already been increasing due to a tight global supply—a trend that began after supply chain issues in early 2020. The US has little capability to quickly replace these imports. Therefore, we see these comments as political rather than economic threats for now. From a technical perspective, the dollar’s decline against the loonie seems to have reached its limit around the 1.3800 level. Short-term indicators suggest a slight rebound for the US dollar is possible, so traders should be careful about making aggressive bearish bets on the pair right away. We see strong resistance forming near the 1.3900 level that may contain any immediate strength. This situation suggests a strategy of selling out-of-the-money USD call options with short-term expirations to take advantage of the expected resistance. Looking ahead over the next few weeks, the overall trend seems to be moving against the US dollar’s long-standing bullish position. A shift toward the low-to-mid 1.37s appears likely, making longer-dated CAD call options with January 2026 expirations an appealing option for betting on this anticipated weakness. We are witnessing a market shift away from the interest-rate-driven volatility seen in 2022 and 2023. Now, with most central banks holding their positions, strong fundamental data, such as employment reports, are having a more pronounced and lasting effect on currency values. This indicates that the underlying economic health is becoming a primary driver of foreign exchange movements.

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