Canadian Dollar Outlook: USD/CAD maintains a bearish tone following the release of US employment data.
2025-12-17 00:55:36
Over the past five trading days, the USD/CAD exchange rate has fallen by more than 0.7%, with the Canadian dollar holding the upper hand and its short-term bearish trend remaining stable. Currently, the exchange rate faces persistently high selling pressure, a situation particularly evident after the release of US employment data, which further reinforced the structural weakness of the US dollar. Furthermore, this week's Canadian inflation data continues to support the Bank of Canada's policy of maintaining a neutral interest rate, helping the Canadian dollar maintain a stable trend. If these two factors continue to unfold, selling pressure is likely to continue to dominate the USD/CAD exchange rate movement in the coming trading days.
What signals do the US employment data reveal?
Due to the recent US government shutdown, the October and November non-farm payroll data were delayed until today. Although the latest November data was positive—64,000 new jobs were added, exceeding market expectations of 50,000—the October data showed a significant decrease of 100,000 jobs, highlighting a substantial cooling in the US labor market.
Despite the mixed non-farm payroll data, the Federal Reserve has not yet adjusted its policy outlook for next year. The weak October data provided justification for last week's rate cut; while the rebound in November's employment data supports the possibility that the central bank will maintain a neutral stance at its January meeting. More clearly, the volatility in the labor market suggests that the Fed will not consider raising rates in 2026, but may instead flexibly switch between maintaining a neutral interest rate and further rate cuts to stabilize the employment situation.
However, the market environment following the release of the non-farm payroll data failed to boost demand for the US dollar. On the one hand, labor market data remained in a sensitive range, weakening the attractiveness of dollar assets; on the other hand, the Federal Reserve had not yet released a clear signal regarding its policy direction for 2026, exacerbating the overall wait-and-see sentiment in the market and undermining the stability of US Treasury bonds. The uncertainty surrounding the policy outlook reduced the willingness of overseas capital to allocate to dollar assets, thereby suppressing dollar demand.
The US Dollar Index (DXY), which measures the dollar's exchange rate against a basket of currencies, directly reflects this weakness. The index has continued its steady downward trend, currently trading below 100 and approaching the 98 level, its lowest level since early October. This movement confirms the dollar's continued weakness in the short term.
In summary, the release of this employment data did not boost market confidence in the US economy; instead, it exacerbated uncertainty. As long as this situation persists, the structural weakness of the US dollar will continue to benefit the Canadian dollar, driving it steadily higher and exerting continued selling pressure on the USD/CAD exchange rate in the coming trading days.
What is the current state of inflation in Canada?
Statistics Canada released its Consumer Price Index (CPI) data this Monday, showing a neutral inflation trend. The overall inflation rate remained at 2.2% in November, unchanged from October. Although inflation has not shown an upward trend recently, it is still slightly above the Bank of Canada's 2% policy target, meaning that the inflation situation still needs to be monitored.
While this inflation data does not imply an aggressive monetary policy stance from the Bank of Canada in 2026, it clearly indicates that the central bank will maintain a neutral interest rate orientation. Compared to expectations of further rate cuts by the Federal Reserve, Canada's more stable interest rate environment is expected to continue to enhance the attractiveness of Canadian dollar-denominated assets, attracting inflows of overseas capital and thus supporting demand for the Canadian dollar in the short term.
If this neutral interest rate expectation persists, demand for the Canadian dollar may remain stable, becoming a key factor driving continued selling pressure on the USD/CAD exchange rate in the medium term.
USD/CAD Technical Analysis
(USD/CAD daily chart source: EasyForex)
A new downtrend has formed: Since hitting its high in November, the USD/CAD pair has gradually built a new short-term downtrend. During this process, the bulls have failed to mount a strong counterattack, making this downtrend the core technical structure dominating short-term price action. However, given the recent significant selling pressure, a short-term rebound is possible. While this rebound may not reverse the overall downtrend, it could create a temporary bullish sentiment in the market over the next few trading days.
The Relative Strength Index (RSI) has been consistently trading below the 50 neutral level, reflecting the dominance of bearish momentum over the past 14 trading periods. However, the indicator is approaching the oversold zone of 30, which could indicate short-term market imbalances caused by excessive selling, potentially creating conditions for a short-term rebound in exchange rates.
Moving Average Convergence Divergence (MACD): The MACD histogram remains below the zero line, indicating a bearish advantage in the short-term moving average dimension. If this trend continues, the exchange rate may enter a consolidation phase, providing an opportunity for a more structural bullish correction in the USD/CAD chart.
Key bullish and bearish price levels
Key resistance level: 1.38690 – This is a key neutral level on the chart and coincides with the 200-period simple moving average. A move back to this level could reignite bullish sentiment and challenge the current dominant downtrend.
Immediate resistance level: 1.38010 – This is the neutral consolidation range that has recently formed, and it may pose resistance to a short-term rebound correction.
Key support level: 1.37347 – This is the key retracement range during August and September, and also the most important target for short positions.
A break below this support level would reinforce the market's bearish sentiment and open up further downside potential for the exchange rate.
What signals do the US employment data reveal?
Due to the recent US government shutdown, the October and November non-farm payroll data were delayed until today. Although the latest November data was positive—64,000 new jobs were added, exceeding market expectations of 50,000—the October data showed a significant decrease of 100,000 jobs, highlighting a substantial cooling in the US labor market.
Despite the mixed non-farm payroll data, the Federal Reserve has not yet adjusted its policy outlook for next year. The weak October data provided justification for last week's rate cut; while the rebound in November's employment data supports the possibility that the central bank will maintain a neutral stance at its January meeting. More clearly, the volatility in the labor market suggests that the Fed will not consider raising rates in 2026, but may instead flexibly switch between maintaining a neutral interest rate and further rate cuts to stabilize the employment situation.
However, the market environment following the release of the non-farm payroll data failed to boost demand for the US dollar. On the one hand, labor market data remained in a sensitive range, weakening the attractiveness of dollar assets; on the other hand, the Federal Reserve had not yet released a clear signal regarding its policy direction for 2026, exacerbating the overall wait-and-see sentiment in the market and undermining the stability of US Treasury bonds. The uncertainty surrounding the policy outlook reduced the willingness of overseas capital to allocate to dollar assets, thereby suppressing dollar demand.
The US Dollar Index (DXY), which measures the dollar's exchange rate against a basket of currencies, directly reflects this weakness. The index has continued its steady downward trend, currently trading below 100 and approaching the 98 level, its lowest level since early October. This movement confirms the dollar's continued weakness in the short term.
In summary, the release of this employment data did not boost market confidence in the US economy; instead, it exacerbated uncertainty. As long as this situation persists, the structural weakness of the US dollar will continue to benefit the Canadian dollar, driving it steadily higher and exerting continued selling pressure on the USD/CAD exchange rate in the coming trading days.
What is the current state of inflation in Canada?
Statistics Canada released its Consumer Price Index (CPI) data this Monday, showing a neutral inflation trend. The overall inflation rate remained at 2.2% in November, unchanged from October. Although inflation has not shown an upward trend recently, it is still slightly above the Bank of Canada's 2% policy target, meaning that the inflation situation still needs to be monitored.
While this inflation data does not imply an aggressive monetary policy stance from the Bank of Canada in 2026, it clearly indicates that the central bank will maintain a neutral interest rate orientation. Compared to expectations of further rate cuts by the Federal Reserve, Canada's more stable interest rate environment is expected to continue to enhance the attractiveness of Canadian dollar-denominated assets, attracting inflows of overseas capital and thus supporting demand for the Canadian dollar in the short term.
If this neutral interest rate expectation persists, demand for the Canadian dollar may remain stable, becoming a key factor driving continued selling pressure on the USD/CAD exchange rate in the medium term.
USD/CAD Technical Analysis
(USD/CAD daily chart source: EasyForex)
A new downtrend has formed: Since hitting its high in November, the USD/CAD pair has gradually built a new short-term downtrend. During this process, the bulls have failed to mount a strong counterattack, making this downtrend the core technical structure dominating short-term price action. However, given the recent significant selling pressure, a short-term rebound is possible. While this rebound may not reverse the overall downtrend, it could create a temporary bullish sentiment in the market over the next few trading days.
The Relative Strength Index (RSI) has been consistently trading below the 50 neutral level, reflecting the dominance of bearish momentum over the past 14 trading periods. However, the indicator is approaching the oversold zone of 30, which could indicate short-term market imbalances caused by excessive selling, potentially creating conditions for a short-term rebound in exchange rates.
Moving Average Convergence Divergence (MACD): The MACD histogram remains below the zero line, indicating a bearish advantage in the short-term moving average dimension. If this trend continues, the exchange rate may enter a consolidation phase, providing an opportunity for a more structural bullish correction in the USD/CAD chart.
Key bullish and bearish price levels
Key resistance level: 1.38690 – This is a key neutral level on the chart and coincides with the 200-period simple moving average. A move back to this level could reignite bullish sentiment and challenge the current dominant downtrend.
Immediate resistance level: 1.38010 – This is the neutral consolidation range that has recently formed, and it may pose resistance to a short-term rebound correction.
Key support level: 1.37347 – This is the key retracement range during August and September, and also the most important target for short positions.
A break below this support level would reinforce the market's bearish sentiment and open up further downside potential for the exchange rate.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
