USD/CAD stays firm around 1.3900 as the Fed maintains a cautious stance

USD/CAD Holds Firm Amid Economic Developments

The USD/CAD currency pair continues its upward momentum for a second day, hovering near the 1.3900 mark during Wednesday's Asian trading session. This strength is largely attributed to gains in the US Dollar, following a US Consumer Price Index (CPI) report that closely aligned with forecasts. The data has reinforced expectations that the Federal Reserve will likely maintain its current policy stance this month, despite indications that underlying inflationary pressures are beginning to ease.

In December 2025, the US Consumer Price Index rose by 0.3% from the previous month, mirroring both market predictions and the increase recorded in September. Year-over-year, inflation held steady at 2.7%, in line with expectations. The Core CPI, which excludes volatile food and energy prices, edged up by 0.2% for the month—slightly underperforming forecasts—while annual core inflation remained at 2.6%, matching its lowest level in four years.

These figures suggest that inflation is gradually cooling, especially after previous data was distorted by government shutdown effects. Nevertheless, the labor market remains robust, as highlighted by last Friday’s strong Nonfarm Payrolls numbers, a decline in the Unemployment Rate, and a healthy four-week average for ADP Employment Change.

Despite the US Dollar’s recent strength, further gains for USD/CAD may be limited. The Canadian Dollar, which is closely tied to commodities, could find support from rising Oil prices. West Texas Intermediate (WTI) crude is trading near its highest level in two months, around $60.70 per barrel at the time of reporting.

Oil prices have climbed following US President Donald Trump’s decision to suspend negotiations with Iranian officials until ongoing protests subside, while also expressing solidarity with demonstrators. The unrest in Iran, combined with the possibility of US intervention, poses a threat to the nation’s oil production of approximately 3.3 million barrels per day. Additionally, President Trump’s warning of a new 25% tariff on countries continuing business with Iran has heightened fears of further supply disruptions.