Canadian Dollar Weakens Against US Dollar Amid Oil Pressures and Mixed Economic Data

New York | EcoPulse24

The Canadian dollar came under further pressure, weakening toward 1.38 per US dollar and distancing itself from the highs seen in late December, which were the strongest since July. This move reflected temporary strength in the US dollar and a decline in fundamental support for the loonie.

The Canadian currency was weighed down by increased demand for the US dollar following geopolitical developments related to Venezuela, as markets repriced regional risks and anticipated renewed US access to Venezuelan oil reserves. This dynamic pressured commodity-linked currencies, as prospects of higher oil supply and concerns over a sustained drop in crude prices undermined one of the key supports for Canada’s external balance.

Looking ahead, market estimates suggest a softer oil market outlook through 2026, with expectations of ample supply and slowing demand further limiting support for the Canadian dollar. Domestically, Canada’s economic momentum slowed into the fourth quarter, weakening bets on aggressive monetary tightening from the Bank of Canada.

In contrast, the US dollar trimmed much of its early gains, with the dollar index trading near 98.5 after briefly touching 98.8 following the Venezuelan events. This momentum faded as geopolitical concerns eased and the ISM manufacturing index disappointed, indicating the deepest contraction in the sector since 2024 during December.

Markets are now focused on several upcoming US economic reports, including the jobs report, JOLTS, ADP, and the University of Michigan consumer sentiment survey, seeking clearer signs of economic resilience. Currently, markets are pricing in two US rate cuts for the year, despite the Federal Reserve’s official guidance pointing to only one cut.

EcoPulse24 Analysis
The recent moves in both currencies reflect a short-term paradox: US dollar strength driven by geopolitical risk is colliding with signals of economic slowdown, while the Canadian dollar remains heavily dependent on oil prices and global supply balances. The persistence of this trend will depend on whether upcoming US data support a monetary easing scenario and on the energy market’s ability to provide sustained support for commodity-linked currencies.