The USD/CAD pair retreated from its highs amid a tug-of-war between a weaker US dollar and pressure on the Canadian dollar.
2026-01-12 10:35:03
The US dollar/Canadian dollar pair saw a slight pullback during Monday's Asian trading session, ending a nine-day winning streak. The pair touched around 1.3920 on Friday, its highest level since December 5th of last year.
On Monday, the exchange rate fell due to a general weakening of the US dollar, briefly breaking below the 200-day simple moving average. The main reason for the dollar's weakness was the growing market concern about the independence of the Federal Reserve's policies.
Federal Reserve Chairman Jerome Powell stated that the central bank sets interest rate policies based on the best judgment of the public interest. This statement sparked discussions in the market about whether the Fed can be free from political interference, causing the dollar to fall from its highs and putting short-term pressure on the USD/CAD exchange rate.
Meanwhile, geopolitical risks continue to escalate. Trump stated that he is considering various options for dealing with the situation in Iran, including potential military action. Against the backdrop of the ongoing Russia-Ukraine conflict, global uncertainty persists, which to some extent supports the safe-haven appeal of the US dollar and limits its further decline.
From the perspective of interest rate expectations, the latest US non-farm payroll report showed relatively robust performance. The unemployment rate fell to 4.4% in December, easing market concerns about a rapid cooling of the US labor market and reinforcing expectations that the Federal Reserve will maintain higher interest rates for a longer period.
This factor also supports the US dollar. Conversely, the Canadian dollar faces significant fundamental pressures. Signs of weakness in the Canadian labor market have diminished market expectations for a tightening of monetary policy by the Bank of Canada.
Meanwhile, a pullback in crude oil prices during the session also weighed on this commodity currency, providing some support for the USD/CAD exchange rate.
From a daily chart perspective, the USD/CAD pair had previously surged and even broke above the 200-day moving average; the current pullback is more of a technical correction. The area around 1.3920 forms a temporary resistance level, while the 1.3800 area below is a key short-term support level.
Ahead of the release of US CPI and PPI data, market sentiment is cautious. If there is a lack of sustained selling momentum, the exchange rate is more likely to remain volatile at high levels in the short term rather than experience a trend reversal.
Editor's Note:
Overall, the USD/CAD pair is currently in a tug-of-war between a temporary pullback in the US dollar and a relatively weak fundamental outlook for the Canadian dollar. The US dollar is under short-term pressure, but its downside is limited, supported by geopolitical risks and relatively robust US economic data.
The lack of clear positive drivers for the Canadian dollar limited its downside. Ahead of key inflation data releases, the market is likely to remain cautious, and the USD/CAD pair is more likely to trade within a range.
On Monday, the exchange rate fell due to a general weakening of the US dollar, briefly breaking below the 200-day simple moving average. The main reason for the dollar's weakness was the growing market concern about the independence of the Federal Reserve's policies.
Federal Reserve Chairman Jerome Powell stated that the central bank sets interest rate policies based on the best judgment of the public interest. This statement sparked discussions in the market about whether the Fed can be free from political interference, causing the dollar to fall from its highs and putting short-term pressure on the USD/CAD exchange rate.
Meanwhile, geopolitical risks continue to escalate. Trump stated that he is considering various options for dealing with the situation in Iran, including potential military action. Against the backdrop of the ongoing Russia-Ukraine conflict, global uncertainty persists, which to some extent supports the safe-haven appeal of the US dollar and limits its further decline.
From the perspective of interest rate expectations, the latest US non-farm payroll report showed relatively robust performance. The unemployment rate fell to 4.4% in December, easing market concerns about a rapid cooling of the US labor market and reinforcing expectations that the Federal Reserve will maintain higher interest rates for a longer period.
This factor also supports the US dollar. Conversely, the Canadian dollar faces significant fundamental pressures. Signs of weakness in the Canadian labor market have diminished market expectations for a tightening of monetary policy by the Bank of Canada.
Meanwhile, a pullback in crude oil prices during the session also weighed on this commodity currency, providing some support for the USD/CAD exchange rate.
From a daily chart perspective, the USD/CAD pair had previously surged and even broke above the 200-day moving average; the current pullback is more of a technical correction. The area around 1.3920 forms a temporary resistance level, while the 1.3800 area below is a key short-term support level.
Ahead of the release of US CPI and PPI data, market sentiment is cautious. If there is a lack of sustained selling momentum, the exchange rate is more likely to remain volatile at high levels in the short term rather than experience a trend reversal.
Editor's Note:
Overall, the USD/CAD pair is currently in a tug-of-war between a temporary pullback in the US dollar and a relatively weak fundamental outlook for the Canadian dollar. The US dollar is under short-term pressure, but its downside is limited, supported by geopolitical risks and relatively robust US economic data.
The lack of clear positive drivers for the Canadian dollar limited its downside. Ahead of key inflation data releases, the market is likely to remain cautious, and the USD/CAD pair is more likely to trade within a range.
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