Title: USD/CAD Holds Above 12-Week Low Despite Weekly Decline: Key Drivers and Forecast
Original Author Credit: TradingPedia.com, December 14, 2025
The US dollar (USD) maintained its position above a 12-week low against the Canadian dollar (CAD) in the week ending December 14, 2025. Despite this relative strength, the USD/CAD pair recorded a weekly loss due to ongoing macroeconomic dynamics and risk sentiment developments that affected both the Canadian and US economies.
This article provides an in-depth breakdown of the factors driving the movements in the USD/CAD currency pair, including recent economic data, central bank policy outlooks, commodity price trends, and geopolitical influences. Additionally, it discusses technical analysis and forecasts from a range of financial industry sources.
Overview of Recent Performance
– The USD/CAD currency pair closed the week trading near 1.3530, hovering above the 12-week low of 1.3502 reached earlier in the week.
– It posted a weekly loss of approximately 0.35 percent, its second consecutive weekly decline.
– The pair attempted multiple intraday recoveries driven by US economic indicators but remained under pressure due to strong Canadian fundamentals and recovering crude oil prices.
Key Drivers of USD/CAD Movement
1. Canadian Economic Strength
Canada’s recent economic performance was a key factor behind the appreciation of the Canadian dollar (loonie).
– October employment data released by Statistics Canada showed surprising strength. The economy added a net 25,600 jobs, surpassing the forecasted 13,500 gain.
– The unemployment rate rose slightly to 5.8 percent from 5.7 percent, reflecting increased labor force participation rather than a weakening job market.
– Wage growth remained high, with average hourly wages up 4.8 percent year-over-year. This continued wage pressure could influence Bank of Canada policy by keeping inflation elevated.
2. Crude Oil Price Recovery
The Canadian dollar is closely linked to movements in crude oil prices due to Canada’s status as a top oil exporter.
– Brent crude rose more than 3 percent over the week to trade near $78 per barrel. Similarly, West Texas Intermediate (WTI) crude climbed to approximately $73 per barrel by the end of the week.
– Supportive factors included a decline in US crude inventories and expectations of further OPEC+ output cuts, which help stabilize oil markets amid demand concerns.
– As oil prices stabilized, demand for the CAD improved, especially relative to the USD which had lost some of its haven appeal.
3. Softening of the US Dollar
The US dollar weakened against a basket of currencies, including the Canadian dollar, due to shifting expectations regarding the Federal Reserve’s interest rate trajectory.
– The latest Producer Price Index (PPI) came in weaker than expected, with core PPI slowing to an annualized 2.0 percent in November, down from 2.4 percent in October.
– The softer-than-expected inflation data reinforced market expectations that the Federal Reserve may initiate interest rate cuts earlier in 2026, possibly as soon as March.
– Less aggressive Fed policy shifts make the USD less attractive to carry trade investors, leading to a decline in the USD/CAD pair.
4. Federal Reserve Policy Outlook
The Federal Reserve held rates steady at its December 2025 meeting, as widely expected, maintaining the federal funds rate in the 5.25 to 5.50 percent range.
– The FOMC’s latest Summary of Economic Projections (SEP) hinted at possible rate cuts totaling 75 basis points in 2026. This would bring the policy rate closer to 4.75 percent by the end of next year, assuming inflation subsides.
– Fed Chair Jerome Powell acknowledged improved inflation dynamics but said the central bank was not yet ready to declare victory on price stability.
– Bond yields declined in response to the dovish tone of the Fed, which added further pressure on
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