US Dollar holds steady amid varied US economic reports, while Canadian Dollar pressured by falling Oil prices

USD/CAD Edges Higher Amid Divergent Economic Signals

As of Wednesday, USD/CAD hovers near 1.3820, marking a 0.10% increase for the day. The pair is buoyed by a slight recovery in the US Dollar, which benefits from mixed US economic indicators and continued softness in the Canadian Dollar.

Recent data from the United States points to a strengthening services sector. The Institute for Supply Management (ISM) reported its Services PMI at 54.4 for December, up from 52.6 and surpassing analyst forecasts. This suggests the sector is gaining traction, though underlying details remain varied. Notably, the Prices Paid Index dipped to 64.3, indicating a modest easing of inflation, while the Employment Index climbed to 52, reflecting a gradual improvement in hiring. Additionally, a rise in New Orders highlights stronger demand as the year concluded.

However, other employment metrics present a more complex outlook. The Job Openings and Labor Turnover Survey revealed a decline in vacancies to 7.14 million in November, falling short of expectations and pointing to a slow cooling in the job market. Meanwhile, ADP data showed private sector payrolls increased by just 41,000 in December, a figure below projections, despite recovering from November’s drop. Collectively, these figures suggest the Federal Reserve is likely to maintain a cautious stance ahead of its meeting at the end of January, with investors anticipating a gradual approach to rate reductions through 2026.

Despite these mixed signals, the US Dollar has found some near-term strength. The US Dollar Index (DXY) remains steady around 98.60 after bouncing back from earlier lows, as traders adjust their positions in response to the latest economic reports. This resilience is lending support to USD/CAD, even as the outlook for US monetary policy remains dovish.

Turning to Canada, the Canadian Dollar continues to struggle, pressured by declining Oil prices—a critical component of the nation’s economy. Crude prices have slipped amid concerns about oversupply, following remarks from US President Donald Trump about the possibility of importing 30 to 50 million barrels of Venezuelan oil into the US. This development has reignited worries about an already saturated market, putting additional strain on commodity-dependent currencies.

While Canada’s Ivey PMI climbed to 51.9 in December, indicating renewed growth in business activity, this positive sign has not been sufficient to counterbalance the drag from weaker Oil prices on the Canadian Dollar.