US labor market numbers raise doubts as USD/CAD gains ground thanks to pressure on the Canadian dollar

Divergences in Economic Indicators Support the USD/CAD Pair

In the current session, USD/CAD trades near 1.3820, showing a 0.10% increase. This movement reflects the tension between different signals emitted by the U.S. economy, combined with the weakness experienced by the Canadian dollar due to performance in the energy market.

Services Recovering, but Employment Sends Contradictory Signals

The latest data from the U.S. services sector presents an encouraging outlook. The Institute for Supply Management’s Services PMI reached 54.4 in December, surpassing the previous reading of 52.6 and analyst expectations. This result suggests that the sector maintains its dynamism, although with notable nuances in its internal components.

The Paid Prices index fell to 64.3, indicating some relief from inflationary pressures. At the same time, the Employment subindex rose to 52, reflecting stronger hiring. New Orders also showed expansion, indicating that demand remains resilient toward the end of the year.

However, the labor outlook presents concerning contradictions. Job openings fell to 7.14 million in November, a result below expectations that indicates a gradual cooling in the labor market. Similarly, private sector payrolls according to ADP grew by just 41,000 positions in December, a figure below projections and indicating a slowdown in job creation.

The Federal Reserve at the Crossroads of Mixed Data

These contradictory numbers are likely to keep the Federal Reserve in a cautious stance ahead of its late-January meeting. Traders anticipate a gradual pace of interest rate reductions during 2026, with a moderate approach to monetary adjustments.

Despite this prudence, the US dollar index (DXY) has remained resilient around 98.60 after recovering from previous lows. This firmness provides support to USD/CAD, even considering that the outlook for monetary policy remains cautious.

Weak Oil Dragging the Canadian Dollar Backward

The Canadian dollar faces significant pressures stemming from weakness in oil prices, a key factor for the country’s economy. Crude prices have retreated due to concerns over supply saturation. These fears intensified after statements from U.S. President Donald Trump about the possible importation of 30 to 50 million barrels of Venezuelan crude into the U.S. Such a scenario has rekindled worries about a market already characterized by abundant supply, exerting additional downward pressure on resource-linked currencies.

Canadian Business Activity Does Not Offset Energy Impact

Although the Ivey PMI in Canada rose to 51.9 in December, signaling a reactivation in business activity growth, this improvement has been insufficient to counteract the negative effect of depressed oil prices on the Canadian dollar. What does this signal? That structural pressures stemming from the energy sector dominate short-term dynamics in the national currency.