US Dollar stabilizes on mixed US data, Canadian Dollar weighed by Oil decline

• The US Dollar stabilizes after a series of mixed macroeconomic releases in the United States.
• Activity and employment indicators keep US monetary policy in a cautious stance.
• The Canadian Dollar remains under pressure amid lower Oil prices and supply-side factors.

USD/CAD trades around 1.3820 on Wednesday at the time of writing, up 0.10% on the day, supported by a modest rebound in the US Dollar (USD) amid mixed US economic data and persistent weakness in the Canadian Dollar (CAD).

In the United States (US), activity in the services sector shows signs of improvement. The Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI) came in at 54.4 in December, up from 52.6 previously and above market expectations. This increase points to stronger momentum in the services sector, although some components remain mixed. The Prices Paid Index eased to 64.3, suggesting a slight moderation in inflationary pressures, while the Employment Index rose to 52, indicating a moderate improvement in labor market conditions in the services sector. New Orders also increased, reinforcing the view of firmer demand toward year-end.

At the same time, other labor market indicators paint a more nuanced picture. Job Openings from the Job Openings and Labor Turnover Survey fell to 7.14 million in November, below expectations, confirming a gradual cooling in the labor market. The report from the Automatic Data Processing (ADP) Research Institute also showed private sector payrolls rising by 41,000 in December, weaker than forecast, despite a rebound after November’s contraction. Taken together, these data keep the Federal Reserve (Fed) in a wait-and-see mode ahead of its late-January meeting, with markets continuing to price in a cautious path of rate cuts during 2026.

The US Dollar nevertheless finds some short-term support. The US Dollar Index (DXY) holds around 98.60 after rebounding from daily lows, reflecting position adjustments following the macroeconomic releases. This move supports USD/CAD, despite expectations remaining tilted toward gradual monetary easing by the Federal Reserve.

On the Canadian side, the Canadian Dollar remains weighed down by falling Oil prices, a key pillar of the country’s economy. Crude Oil prices decline amid fears of excess supply after comments by US President Donald Trump suggesting a potential delivery of 30 to 50 million barrels of Venezuelan crude to the United States (US). This prospect revives concerns about an already well-supplied market and weighs on commodity-linked currencies.

Although Canada’s Ivey Purchasing Managers Index rose to 51.9 in December, signaling a return to expansion territory for business activity, this support is not enough to offset the negative impact of lower Oil prices on the Canadian Dollar.