12.01.202612:38 Forex Analysis & Reviews: USD/CAD. Analysis and Forecast

The USD/CAD pair remains under selling pressure, reflecting the weakening of the US dollar following the latest news signals. At the same time, rising political and geopolitical risks are creating a mixed backdrop for both the US dollar and the Canadian dollar.

Federal Reserve Chair Jerome Powell emphasized that the central bank sets interest rates based on its best assessment of what serves the public interest, rather than on the president's political preferences. This emphasis on the Federal Reserve's independence has intensified market concerns about political pressure on the Fed, which triggered a decline in the US Dollar Index from levels last seen on December 5 and again recorded on Friday, adding further pressure on the USD/CAD pair.

At the same time, US President Donald Trump said on Sunday that he is considering a wide range of retaliatory measures in response to unrest in Iran, including the possibility of using military force. These statements came amid the ongoing Russia–Ukraine conflict and supported an elevated level of geopolitical tension, which, together with reduced expectations for more aggressive Fed policy easing, could become a supportive factor for the US dollar.

An additional negative factor for the Canadian currency is the intraday decline in oil prices, as the Canadian dollar is a commodity-dependent currency. Thus, the Canadian dollar provides some support to the USD/CAD pair.

Pressure on the Canadian dollar is also being intensified by signs of cooling in the domestic labor market, which reduces the likelihood of further tightening of monetary policy by the Bank of Canada.

In the United States, the key Nonfarm Payrolls (NFP) report released on Friday showed that the unemployment rate fell to 4.4% in December, easing concerns about the state of the labor market. These data strengthened the case for keeping Fed interest rates at elevated levels for a longer period, which could limit the extent of further US dollar weakness and calls for caution among USD/CAD bears.

For better trading opportunities, attention should be paid to the release of the latest US inflation data—the Consumer Price Index (CPI) and the Producer Price Index (PPI) on Tuesday and Wednesday, respectively. For now, traders may adopt a wait-and-see stance ahead of these releases.

From a technical perspective, the pair has found support at the 50-day EMA, below which the main support lies at the 200-day SMA near the 1.3850 level. If USD/CAD fails to hold these levels, deeper losses may follow.

On the other hand, resistance is now seen at the round 1.3900 level, near which the 100-day SMA is located. Oscillators on the daily chart are mixed, suggesting that the pair has not yet chosen a clear direction ahead of the US data releases scheduled for Tuesday and Wednesday.