Canadian Dollar Nears Monthly Highs

The Canadian dollar strengthened past 1.39 per US dollar, attempting to rebound after trading in a narrow range near early December lows as investors digested a mixed inflation report and a softer US dollar.

Headline inflation unexpectedly rose to 2.4% in December, above consensus and slightly firmer than the Bank of Canada’s near-term projection that CPI would hover near the 2% target.

While the median core inflation rate eased to a one-year low of 2.5%, signalling some moderation in underlying price pressures, the combination of firmer headline inflation and resilient demand argues for a more cautious pace and timing of rate cuts.

The loonie has also drawn support from oil amid steady export flows to the US, constrained near-term supply growth, and a relatively tight North American crude balance that has helped stabilize energy revenues and Canada’s trade outlook.

In the meantime, the US dollar weakened following renewed tariff threats from Washington.

The Canadian dollar softened toward 1.39 per US dollar, trading in a narrow range near early December lows as renewed US dollar support and weaker oil prices offset still supportive domestic fundamentals.

The greenback firmed after US initial jobless claims fell sharply, reinforcing confidence in a resilient US labor market and reducing the urgency for near term Fed easing, while President Trump’s calmer tone on Iran pared the geopolitical premium in crude, pushing oil prices lower and eroding the CAD’s terms of trade support.

At home, upside remains capped by softer labor dynamics, with unemployment holding near 6.8%, reinforcing the Bank of Canada’s neutral stance and limiting the scope for tighter financial conditions to underpin the currency.

Even so, downside pressure remains contained, as broader fundamentals have improved modestly, with earlier gains in oil and gold and a stabilization in rate spreads continuing to provide a floor.

The Canadian dollar weakened toward 1.39 per US dollar, marking a one-month low as a clear deterioration in labour market conditions weakened the case for tighter Bank of Canada policy and eroded Canada’s rate support.

December data showed the unemployment rate rising to 6.8% from 6.5%, well above expectations, not because of layoffs but due to a sharp increase in labour force participation to 65.4%, which brought more jobseekers into the market faster than hiring could absorb them.

While employment rose modestly by 8.2K, slowing wage growth at 3.7% y/y from 4% signalled easing domestic inflation pressure, reinforcing the Bank of Canada’s view that policy is already sufficiently restrictive at 2.25%.

This combination has reduced confidence in near-term tightening and narrowed expected rate differentials.

At the same time, expectations that Venezuelan crude flows could return have widened the WTI-WCS spread, trimming Canada’s energy export outlook and further weighing on the currency.

The Canadian Dollar touched 1.38 against the USD, the lowest since December 2025.

Over the past 4 weeks, US Dollar Canadian Dollar lost 0.25%, and in the last 12 months, it decreased 3.85%.

The Canadian dollar weakened toward 1.38 per US dollar, pulling back from its strongest level since July reached in late December, as a stronger greenback driven by geopolitics collided with fading sources of support for Canada’s currency.

The capture of Venezuela’s leader by US forces triggered an immediate rise in dollar demand as markets reassessed regional risk and the prospect of renewed US access to Venezuela’s vast crude reserves, weighing on commodity linked currencies.

Speculation over future Venezuelan output and an uneven early price response have reinforced concerns that sustained downside in crude would erode a key pillar of Canada’s external earnings and currency support.

At the same time the global oil outlook into 2026 appears softer, with expectations of ample supply and more subdued demand lowering the floor under the loonie.

Domestically, economic growth momentum cooled into Q4 and weakened the case for firm Canadian monetary policy.

The Canadian dollar weakened past 1.37 per US dollar, easing from its strongest level since July, as softer domestic growth signals, falling Canadian bond yields, and deteriorating terms of trade eroded Canada’s relative yield and income support, while a firmer US dollar into year end pulled capital back toward US assets.

Statistics Canada reported a 0.3% contraction in real GDP in October, confirming that growth momentum cooled into Q4 and weakening the case for Canadian policy outperformance versus the US. Canada’s commodity terms of trade have also softened as crude benchmarks declined materially through the year, trimming export receipts and FX inflows.

At the same time, Canadian 10-year yields eased into the low-3% range while US yields remained closer to the low-4% area, widening the carry gap and favoring dollar-denominated assets.

The move is an unwinding part of the roughly 4.8% appreciation accumulated earlier in the year.