The USD/CAD pair is on the rise, trading close to 1.3770 as the US Dollar gains strength during the European trading session. This increase of 0.25% occurs as the Canadian Dollar faces challenges in a tough market.

Geopolitical Issues Impact the Market

The US Dollar Index has climbed by 0.2%, reaching around 98.60 points. Concerns over a US strike on Venezuela are making the market cautious. This week, we expect important economic data like the US Nonfarm Payrolls and ISM Manufacturing PMI. For December, the ISM Manufacturing PMI is forecasted to rise slightly to 48.3 from November’s 48.2. From a technical standpoint, USD/CAD is at 1.3768 on the daily chart. The 20-day EMA is at 1.3765, and closing above this level might suggest a short-term base is forming. The price is currently testing support at the 61.8% retracement level. If it stays above this point, we could see it rise to the 50% retracement at 1.3840. However, if it fails to hold support, there may be further downside risk. The RSI is at 46 and recovering, but still below the 50 midline, which might limit recovery potential or confirm reinforcement above 50. As USD/CAD rallies for the fifth consecutive day, the main driver is a move toward the safety of the US dollar amid tensions in Venezuela. This risk-averse environment is weighing on commodity currencies like the Canadian dollar. Traders should watch whether this sentiment continues to influence market trends in the days ahead.

Key Economic Indicators

Today’s highlight is the ISM Manufacturing PMI for December 2025, expected to indicate continued contraction at 48.3. This trend is not new, as the manufacturing sector has faced challenges throughout 2025, with data lingering below the 50-point mark for over a year. A number well below expectations could raise recession fears, potentially boosting the safe-haven dollar further. Looking forward, the Nonfarm Payrolls report will be the week’s most significant release. The US labor market has shown surprising strength in the last quarter of 2025, consistently surpassing job growth forecasts. Another strong report could imply that the Federal Reserve may be slower to cut interest rates compared to other central banks. The Canadian dollar’s weakness also stems from domestic issues, particularly stagnant WTI crude oil prices, which have remained in the low $70s for much of late 2025. Coupled with a more cautious tone from the Bank of Canada in December, this creates a fundamental challenge for the loonie. This difference in central bank outlooks plays an essential role in supporting a higher USD/CAD. From a derivatives viewpoint, the pair is at a crucial point around the 1.3770 level. If the price can maintain and close above this area, it may suggest a near-term bottom, making call options with a strike price near 1.3840 worth considering. Conversely, if it fails to hold this level, the bearish trend remains, making put options more appealing if the price dips back below the 20-day average. Create your live VT Markets account and start trading now.

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