Canadian Dollar weakens as US-Venezuela tensions lift the Greenback

The Canadian Dollar (CAD) trades on the back foot against the US Dollar (USD) on Monday, as the Greenback draws support from rising geopolitical tensions after US forces captured Venezuelan President Nicolas Maduro over the weekend. At the time of writing, USD/CAD trades around 1.3789, easing slightly after briefly climbing to its highest level since December 11.

The escalation has fuelled a mild risk-off tone across markets, weighing on the Loonie as traders digest the implications of the US operation in Venezuela and the heightened uncertainty surrounding regional Crude Oil supply. The Canadian Dollar remains particularly sensitive to Oil market developments, given Canada’s status as a major energy exporter.

US President Donald Trump said the United States would temporarily “run” Venezuela. Trump added that major US Oil companies would invest “billions and billions of dollars” to repair Venezuela’s “badly broken” and “rotted” energy infrastructure. Venezuela holds the world’s largest proven crude oil reserves, estimated at around 303 billion barrels, according to the US Energy Information Administration (EIA).

Beyond geopolitics, investor attention is also turning to upcoming US economic data, which could help shape expectations for the Federal Reserve’s monetary policy path. Markets are currently pricing in two rate cuts in 2026, a backdrop that may limit the upside in the US Dollar, even as near-term safe-haven demand offers support.

The ISM Manufacturing Purchasing Managers Index (PMI) is due later on Monday. Economists expect the ISM Manufacturing PMI for December to remain in contraction territory, with the index forecast to edge up to 48.3 from 48.2 in November. The main highlight of the week will be the US Nonfarm Payrolls (NFP) report on Friday.

Minneapolis Fed President Neel Kashkari said on Monday that his “guess” is that monetary policy is now close to neutral, while adding that he expects the US economy to remain resilient. Kashkari also noted that there is a risk the Unemployment Rate could rise and flagged inflation persistence as a key concern.

On the Canadian side, the Bank of Canada (BoC) has signalled comfort with its current policy stance, saying existing settings are appropriate to support the economy while keeping inflation close to the 2% target, reinforcing market views that the BoC’s easing cycle has likely come to an end.

Canada’s economic calendar is relatively light this week, with attention on the Ivey Purchasing Managers Index on Wednesday and labour market data due on Friday.