The USD/CAD pair is nearing 1.3900 as the US Dollar gains strength. This rise comes from expectations that the Federal Reserve will keep interest rates steady later this month. This anticipation follows the steady increase in the US Consumer Price Index for December. The US Dollar Index, which measures the dollar against six major currencies, is close to its monthly peak at 99.26. On the other hand, the Canadian Dollar is facing challenges due to weak job market data, with unemployment rising to 6.8% in December. This increase may lead the Bank of Canada to consider lowering interest rates. Technical analysis of USD/CAD shows the pair close to 1.3900, while the 200-day EMA is holding it back from further increases. A solid break above this average could push it toward 1.4000.

US Dollar’s Global Impact

The US Dollar is the most traded currency in the world, making up over 88% of global foreign exchange transactions. The Federal Reserve controls its value mainly through interest rate changes. In times of financial stress, the Fed might use quantitative easing to add cash to the market, which can weaken the dollar. On the flip side, quantitative tightening generally strengthens the dollar as the Fed buys fewer bonds. Last year, around early 2025, USD/CAD was set for a major move as it approached the 1.3900 level. The market was clear, with a strong US Dollar due to a Federal Reserve reluctant to cut rates, and a weak Canadian Dollar affected by rising unemployment. This split in economic outlooks was a crucial factor. Throughout 2025, this trend continued as US inflation remained stubborn. The last December 2025 Consumer Price Index report showed a 3.4% annual increase, prompting the Federal Reserve to keep interest rates higher to manage price pressures. This has supported the US Dollar against most major currencies. Meanwhile, the Canadian job market remains weak, with the unemployment rate recently rising to 7.1%. This situation led the Bank of Canada to start an easing cycle late last year, reducing its key interest rate to help the struggling economy. The ongoing gap between US and Canadian monetary policies heavily impacts the loonie.

Trading Strategies for USD/CAD

In the upcoming weeks, the likely trend for USD/CAD seems to be upward, making bullish derivative positions appealing. Traders could consider buying call options with strike prices around 1.4250 or 1.4300 to take advantage of this expected trend. This strategy allows for potential gains while clearly defining the maximum risk involved. Create your live VT Markets account and start trading now.

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