The USD/CAD pair dropped to about 1.3685 during early Asian trading, as the US Dollar declined overall. This marked the lowest point for the pair since December 2025, driven by strong Canadian Retail Sales data. Statistics Canada reported that Retail Sales increased by 1.3% in November compared to October, which saw a revised decline of 0.3%. Sales excluding Auto also rose by 1.7%, surpassing the expected 1.2%. Meanwhile, tensions increased as US President Donald Trump threatened to impose 100% tariffs on Canadian goods over a potential Canada-China trade deal.

Key Factors Impacting The Canadian Dollar

Several factors affect the Canadian Dollar. These include interest rates from the Bank of Canada (BoC), oil prices, and the overall health of the economy. The BoC’s interest rate decisions can greatly influence CAD value. Since oil is Canada’s biggest export, higher oil prices usually strengthen the CAD. Inflation data can trigger interest rate changes from the BoC, while economic indicators like GDP and employment also impact the CAD’s strength. Strong economic data can lead to a stronger currency, whereas weaker data might lower its value. With the recent USD/CAD drop below 1.3700, caution is advised. The strong Canadian retail sales data for November 2025, showing a 1.3% increase, supports the strength of the Canadian dollar. This resilience suggests that the Bank of Canada may maintain steady interest rates, especially as December 2025 inflation remained steady at 2.9%, within the BoC’s target range. However, political risks are significant. Trump’s tariff threats, despite pushback from Prime Minister Carney, create a limit on the Canadian dollar’s growth. This situation mirrors the uncertainty of the 2018-2019 trade talks, where news often caused sharp currency fluctuations.

The Price Of Oil And Its Impact On The CAD

Oil prices, a significant factor for the CAD, also offer support. WTI crude recently rose above $85 a barrel due to tighter OPEC+ supply management, strengthening the case for a stronger loonie. Statistics Canada data from last week indicated that energy products made up 23% of total exports in the fourth quarter of 2025, highlighting this close connection. For traders, this creates a mix of solid economic fundamentals and unpredictable political risk. The rising implied volatility in USD/CAD options shows this uncertainty. Strategies that benefit from price movements, like long straddles, could be successful in the coming weeks as new trade developments arise. In light of this situation, using options to manage risk might be wise. Buying USD/CAD call options can serve as a hedge against sudden price bumps from negative political news. For those confident in strong Canadian data, selling out-of-the-money USD/CAD puts could generate premium while waiting for the pair to possibly decline. Create your live VT Markets account and start trading now.

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