Title: Canadian Dollar Holds Steady as USD/CAD Stalls Amid Quiet Year-End Trading
Source: Adapted and expanded from an article by Violeta Todorova, TradingPedia (original publication date: December 30, 2025)
As the forex markets entered the final trading sessions of 2025, the Canadian dollar (CAD) demonstrated notable resilience against the US dollar (USD), with the USD/CAD pair showing limited volatility and moving within a narrow range. This subdued activity came as traders wrapped up their year-end portfolios and liquidity remained thin, a common phenomenon during the holiday season.
This article explores the underlying reasons for the CAD’s firmness, evaluates recent market dynamics, and considers possible trajectories for the USD/CAD exchange rate heading into early 2026. It also integrates insights from prominent forex analysts and relevant macroeconomic indicators impacting the pair.
Quiet Trading Environment Dominates Currency Markets
Late December typically brings diminished trading volumes and reduced price movement in currency markets, as institutional investors and traders take time off during the holiday season. This pattern was clearly visible in the final week of 2025.
– The USD/CAD traded within a tight band of around 1.3275 to 1.3325 during the last few days of December.
– Market participants were reluctant to initiate large positions due to low liquidity.
– Short-term volatility was subdued, limiting opportunities for short-term traders.
Despite the quiet backdrop, the Canadian dollar held ground against its US counterpart, supported by several economic and fundamental factors, which are discussed below.
Canadian Dollar Supported by Firm Energy Prices
One of the most influential drivers for CAD continues to be commodity prices, particularly crude oil. As Canada is a major crude exporter, fluctuations in global oil markets tend to impact the loonie directly.
In late December 2025, Brent crude hovered above $81 per barrel, marking a modest recovery from earlier declines. Meanwhile, West Texas Intermediate (WTI) remained above $76 per barrel. This relative strength in oil prices bolstered support for the Canadian dollar.
Key points:
– Canada produces over 4 million barrels of crude oil per day, and energy exports account for roughly 19% of the country’s total exports.
– Higher oil prices translate into improved trade balances for Canada, increasing demand for CAD.
– Oil’s recent rebound was attributed to expectations of a supply-demand equilibrium in Q1 2026, following OPEC+ decisions to extend production cuts.
According to a report by the International Energy Agency (IEA), oil demand is expected to grow by around 1.2 million barrels per day in early 2026, underpinning further stability in oil-related currencies like the CAD.
US Dollar Softens on Cooling Inflation and Fed Rate Expectations
In contrast to the stable loonie, the US dollar has been under pressure due to softer inflation readings and growing expectations that the Federal Reserve may begin easing monetary policy in 2026.
The December 2025 US Core Personal Consumption Expenditures (PCE) Index, the Federal Reserve’s preferred inflation gauge, came in at 3.1% year-over-year, lower than previous readings and suggesting that price pressures are easing.
Implications:
– Slowing inflation increases speculation that the US central bank may cut rates sooner rather than later.
– Fed officials in recent comments hinted that restrictive monetary policy might no longer be necessary well into 2026 if economic data continues to improve.
– As a result, the US dollar index (DXY) slipped toward the 101.50 level during the final week of December, contributing to a weaker USD across currency pairs, including USD/CAD.
Key Quotes:
– “With inflation cooling and labor markets holding steady, the Fed is in a position to consider rate adjustments in the second quarter of 2026,” said Richard Franzen, senior FX strategist at Bank of New York Mellon.
– “This macro landscape is offering mild support to G10 currencies against the USD, including the CAD
Read more on USD/CAD trading.