- The US dollar has rallied against the Canadian dollar on Monday in what is probably best described as a bit of an oversold condition. If we recover, we will see the US dollar rally against many other currencies at the same time.
USD/CAD
The oil markets have not shown signs of significant strength over the last couple of months, so the Canadian dollar does not have that working for it. However, the Federal Reserve is expected to cut rates in 2026 while the Bank of Canada is expected to hold steady. That does make the US dollar a little bit weaker against the Canadian dollar as far as the interest rate differential is concerned, and you can see exactly how that has played out over the last several weeks.
Bouncing the way we have suggests that there is at least some value hunting or perhaps short covering heading into New Year's Day. The 1.3750 level is an area that I think is important all the way up to the 1.38 level.
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Breakout Scenarios
If we were to break above the 1.38 level, then I believe the US dollar could go much higher. On the other hand, if we break down below the 1.36 level, it opens up a move down to the 1.3550 level, which has been a major area of contention multiple times in the past and most recently had seen a bit of a triple bottom during the summer. This is an area that I think will be difficult to break below.
We will have to wait and see if that ends up being massive support again, but it would not surprise me at all to eventually settle into some type of range. After all, that is how this pair typically behaves, as most of the trade between US dollars and Canadian dollars is done out of necessity, not necessarily speculation.
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