The USD/CAD currency pair has dropped for the second consecutive day. It is now trading around 1.3730, marking the lowest point since September 17. The price is below the 200-day Exponential Moving Average of 1.3900, indicating a bearish trend. The currency pair is approaching an important support level at 1.3540. If this support fails, further declines may occur as the USD continues to be sold off. Technical indicators, such as the MACD below its Signal line and an RSI at 31, suggest that momentum could slow. However, a break below the trend line is necessary to confirm more downward movement.

Factors Affecting the Canadian Dollar

Several factors impact the Canadian Dollar, including the Bank of Canada’s interest rates, oil prices, economic health, inflation, and trade balance. Reports on Canadian GDP and preliminary US Q3 GDP may influence the USD/CAD pair. With the long-term moving average still in play, any price increases are likely to be temporary, with a prevailing bearish sentiment. A bullish trend could emerge if the MACD crosses above its Signal line and the RSI moves toward 40–50. Stronger Canadian oil exports and positive economic data can enhance the value of the Canadian Dollar. A robust economy with higher interest rates typically boosts the currency’s strength. As we near the end of 2025, the USD/CAD pair is just above a critical support level around 1.3730. The technical outlook shows a bearish trend, as the pair trades below its 200-day moving average and has recently been pushed back from 1.3800. Any increase in price should be viewed as a temporary correction, offering a chance to prepare for more declines. The strength of the Canadian dollar is supported by fundamental factors, reinforcing our bearish view on the pair. For instance, WTI crude oil prices have remained above $85 a barrel for most of December, which is beneficial for Canada’s export-driven economy. This stability stands in sharp contrast to the oil price fluctuations seen in the third quarter of 2024.

Opportunities for Traders

Additionally, the Bank of Canada maintained a somewhat hawkish stance in its early December meeting, indicating that rate cuts are not on the horizon due to ongoing domestic inflation. This was supported by November’s job report, which revealed a net gain of 45,000 jobs, surpassing expectations and lowering the unemployment rate to 5.6%. This economic strength gives the Canadian dollar a clear edge. On the other hand, the US dollar is weakening amid rising expectations of Federal Reserve rate cuts in the new year. The Fed’s latest dot plot from December 2025 now suggests a consensus for two rate cuts in the first half of 2026. This divergence between a cautious Bank of Canada and a dovish Fed is a key focus for traders. This scenario offers traders a chance to consider buying put options on USD/CAD with expiration dates in late January or February 2026. This strategy allows one to take advantage of a potential break below the 1.3725 support while controlling maximum risk during the typically thin holiday trading period. The RSI near 31 suggests that the market is close to being oversold, making options useful for managing the timing of any short-term rebounds. Alternatively, traders might wait for a confirmed daily close below the ascending trend-line support before entering short futures positions. A rally back toward the 1.3800 resistance level would create an even better opportunity to initiate bearish trades. Given the current setup, maintaining long positions appears to carry significant risk moving into January. Create your live VT Markets account and start trading now.

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