USD/CAD steadies near 1.3750 as US Dollar slips, Oil weighs on Canadian Dollar
- USD/CAD moves little as the US Dollar slips and markets downplay US–Venezuela tensions.
- US ISM Manufacturing PMI fell for a third month to 47.9 in December, the lowest since October 2024.
- The commodity-linked CAD may face pressure as renewed US access to Venezuelan crude weighs on Canadian Oil demand.
USD/CAD holds ground after registering mild gains in the previous two successive sessions, trading around 1.3760 during the Asian hours on Tuesday. The pair shows limited movement as the US Dollar (USD) ticks lower, with concerns about a broader geopolitical escalation easing. Markets are largely brushing aside tensions between the United States (US) and Venezuela.
The US launched a large-scale military strike against Venezuela on Saturday. US President Donald Trump said Venezuelan President Nicolas Maduro and his wife were captured and flown out of the country. On Monday, Maduro pleaded not guilty to US charges in a narco-terrorism case, setting the stage for an unprecedented legal battle with major geopolitical implications, according to Bloomberg.
The US ISM Manufacturing Purchasing Managers’ Index (PMI) declined for a third straight month, slipping to 47.9 in December 2025, the lowest since October 2024, from 48.2 in November and below expectations of 48.3. The data indicate a faster contraction in US manufacturing activity, driven by declines in production and inventories. Meanwhile, the Employment Index edged up to 44.9 from 44.0 in November, while the Prices Paid Index, the inflation gauge, was unchanged at 58.5.
Traders are awaiting a series of key US economic releases this week, including the Nonfarm Payrolls (NFP) report, for signals on the monetary policy outlook. The consensus forecast sees NFP rising by 55,000 jobs.
The commodity-linked Canadian Dollar (CAD) could come under pressure as expectations of renewed US and corporate access to Venezuela’s vast crude reserves weigh on prospects for Canadian Oil demand from its largest buyer.
In addition, speculation around future Venezuelan output and a muted initial price response have heightened concerns that a sustained decline in Oil prices would undermine a key pillar of Canada’s external earnings and currency support. Meanwhile, the global Oil outlook into 2026 looks softer, with ample supply and more subdued demand expectations reducing the downside cushion for the CAD.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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