USD/CAD Outlook: Canadian Dollar Shows Weakness Amid New Geopolitical Tension Updates

Author: Julian Pineda, CFA, CMT - Market Analyst

Date: December 3, 2026

Market Overview

In the last two trading sessions, the USD/CAD currency pair has gained over 0.3%, indicating a renewed bullish sentiment in the market. This uptick is attributed to the US dollar's resurgence as a safe-haven asset amidst escalating tensions in the Middle East.

Geopolitical Tensions

The ongoing conflict in the Middle East has now reached day 13, with no short-term resolution in sight. Key developments include:

• Increased attacks on vessels and navigation restrictions in the Strait of Hormuz, impacting oil trade.
• Explosions reported in Dubai, further escalating tensions.
• WTI crude oil prices have surpassed the $100 mark, raising inflationary pressure expectations.

As a result, the US dollar has solidified its position as a liquidity safe haven, pushing the DXY index above 99.5, nearing the psychological 100 mark.

Central Bank Dynamics

Recent inflation data from the US has shifted market expectations regarding monetary policy. The Federal Reserve is now anticipated to maintain its current rate of 3.75% for the foreseeable future, with a 90% probability of no changes in March and April. This contrasts with previous expectations of rate cuts, which may now be postponed until October 2026.

In Canada, the Bank of Canada is expected to keep its benchmark rate at 2.25%, reflecting a cautious approach. The disparity in interest rates between the US and Canada may further weaken the Canadian dollar.

Technical Analysis

The technical outlook for USD/CAD shows a long-term descending trendline that has been in place since late November 2025. Key levels to monitor include:

• 1.38015: Key resistance aligned with the 200-period moving average.
• 1.37034: Critical barrier where the descending trendline meets the 50-period moving average.
• 1.35019: Crucial support level that could reactivate bearish trends if breached.

The RSI and MACD indicators suggest a neutral momentum, indicating potential indecision in the market.

Conclusion

As geopolitical tensions persist and central bank policies evolve, the USD/CAD pair may continue to experience buying pressure, with the Canadian dollar likely to remain under pressure in the short term.