The Canadian Dollar (CAD) has slightly fallen against the US Dollar (USD) but remains stable since the weekend. According to Scotiabank’s Chief FX Strategists, Shaun Osborne and Eric Theoret, a recent GDP report boosted the CAD initially, even though it revealed weak consumer spending and business investment. This data indicates that the Bank of Canada will likely keep its policies steady, and there’s a narrowing gap between US and Canadian yields. Even though the CAD is undervalued compared to an estimated fair value of 1.3901, it hasn’t fully recovered yet. While the CAD closed strong last week, it needs improvements in its technical position against the USD.

Currency Level Dynamics

The Canadian dollar dipped below the 1.3972 mark but quickly regained its footing. This level could act as a double top trigger, potentially pushing the currency down to the low 1.38s if it breaks clear. Resistance is identified at 1.4025. The Canadian dollar is maintaining its value after last week’s surprising GDP results, which suggest that the Bank of Canada will keep interest rates steady for now. This situation is different in the United States, helping to narrow the yield spread and support the looine. However, the strength in the GDP numbers is weak, mainly due to increases in government spending and housing rather than consumer or business activity. Recent Canadian retail sales data from October 2025 even showed a 0.2% drop, indicating consumer caution. This underlying weakness raises concerns about the sustainability of the Canadian dollar’s recent strength. Additionally, external factors are posing challenges, with WTI crude oil prices dropping 4% in late November 2025, settling at $78.50 per barrel due to global demand worries. The market is now anticipating this Friday’s crucial US Non-Farm Payrolls report. A strong jobs number could quickly reverse any gains made by the Canadian dollar.

Impact on Derivatives Trading

For derivatives traders, the significant level to monitor is 1.3972 in the USD/CAD pair. If the CAD manages to hold below this level, it would indicate further strength for the Canadian dollar, making put options on USD/CAD with a strike around 1.3900 an appealing strategy. This aligns with a potential adjustment toward the currency’s fair value. On the other hand, if the 1.3972 support holds, especially after a strong US jobs report, we could see a bounce back towards resistance at 1.4025. In this case, purchasing call options on USD/CAD would be a strategic response to expect a weaker loonie. The mixed data implies that a volatility strategy, like a straddle, could also be beneficial to capture significant movements in either direction. This situation differs greatly from 2023 and 2024 when central bank policies created clear trends. Now, with both the Bank of Canada and the US Federal Reserve pausing, the market is influenced by individual data points. This makes technical levels and short-term economic reports crucial for trading strategies. Create your live VT Markets account and start trading now.

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