Canadian Dollar softens slightly amid tepid start to new year
- The Canadian Dollar held within near-term ranges, but softened to open the 2026 trading window.
- Market sentiment is tilted slightly toward bullish heading into the new year, but momentum remains limited.
- PMI survey results played second-fiddle on Friday as traders await next week’s labor data.
The Canadian Dollar (CAD) hit a bit of a soft patch on Friday, kicking off the first trading day of 2026 on the back foot. The Loonie is one of the worst performers for the day, shedding weight against all but one of its major currency peers. Despite a steady note of overall weakness to open up the new trading year, the Canadian Dollar is still within near-term ranges as overall market momentum remains tepid coming out of the holiday window.
Canadian S&P Global Manufacturing Purchasing Managers Index (PMI) figures showed more of the same in December, with overall activity and output falling for an eleventh straight month. Tariffs remain the key thorn in Canadian business activity, with firms opting for lean operations and inventory management, keeping purchasing activity subdued. Tariffs remain the key pink elephant paradox for Canadian businesses, with apprehension keeping supply lines jittery and self-creating some inflationary pressures on input costs.
Daily digest market movers: Canadian Dollar eases slightly after PMIs confirm the usual
The Canadian Dollar lost a little over one-tenth of one percent against the US Dollar (USD) on Friday.
- The new trading year is now here, but overall market narratives remain largely the same.
- According to the latest Canadian S&P Global Manufacturing PMI, Canada’s manufacturing sector ended the year weakly, with falling output and orders, persistent tariff uncertainty weighing on confidence, firms cutting labor, inventories, and purchases, and rising input costs driven by ongoing supply chain delays and tariffs.
- The US Manufacturing PMI component also released on Friday, showing that tariff impacts continue to hit on both sides of the 49th parallel.
- US manufacturers boosted production in December, supporting late-2025 growth. However, with orders falling at the widest gap since the financial crisis, tariff-driven cost pressures squeezing demand, and payroll risks rising, current output levels look unsustainable heading into early 2026 despite some easing in input inflation.
- The first meaningful data dump that will kick off the USD/CAD trading year in earnest will be next week’s dual labor reports, with both the US and Canada slated to release their latest employment statistics on December 9.
Canadian Dollar price forecast
In the 5-minute chart, USD/CAD trades at 1.3740, above the day's opening price by around 20 pips and up for the day. The 200-period EMA edges higher at 1.3725, with price holding above it and keeping the intraday bullish tone. Pullbacks are supported while spot stays over this average. RSI at 59.77 (neutral-bullish) is rising, aligning with improving short-term momentum. Stochastic near 68.61 continues to advance, leaving room before overbought.
Momentum remains supportive as buyers defend the rising average. A drop back under the 200-EMA would undermine the upmove and could trigger a deeper pullback. With RSI shy of the 70 threshold and Stochastic not yet in the 80 band, bulls could attempt to extend gains, though upside would slow if momentum stalls.
In the daily chart, USD/CAD trades at 1.3741. The pair remains below the falling 50-day EMA at 1.3849 and the 200-day EMA at 1.3891, keeping a bearish tone. The short-term average below the long-term one reinforces downside pressure. RSI at 40.9 (neutral) has bounced from oversold but stays under the 50 midline.
Stochastic at 42.7 has turned higher, backing scope for a corrective move. A recovery could stall at the 50-day EMA at 1.3849, while sustained weakness beneath the current level would leave risk of fresh lows. A decisive push through the short-term average would open the path toward the longer-term one; otherwise, sellers remain in control.
(The technical analysis of this story was written with the help of an AI tool)