USD: Venezuela shocks and jobs data jolt the new year
We’re heading into the first full trading week of 2026 with plenty of noise to filter through. Markets are already reacting to the capture of Venezuela’s leader, which has sparked a bid for the U.S. dollar and precious metals while putting some downward pressure on WTI futures. While the ISM manufacturing data sets the early tone, the real gravity this week pulls toward the U.S. labor market. We have a steady build-up of ADP and JOLTS data leading into Friday’s nonfarm payrolls, which remains the defining macro event for the week.
Beyond the employment numbers, keep an eye on the tech sector, as Nvidia CEO Jensen Huang’s press conference on Monday stands out as a major wildcard for risk sentiment. On the global front, it’s a heavy week for inflation data, with national prints from Germany and France preceding the broader Euro-area release. We’ll also be looking for a late-week cross-check on global demand via China’s inflation and credit figures. Between these data points and a flurry of central bank speakers, there isn’t much room for a slow start to the year.
The currency setup is particularly interesting right now. While the consensus is leaning toward a stronger Euro, with some forecasting a climb to $1.20, the interest rate differentials suggest caution. If U.S. inflation remains stubborn and the Fed doesn’t deliver the cuts the market expects, the “short dollar” consensus could be vulnerable to a sharp reversal.
CAD: A case for caution; why Rosenberg’s bullish pivot may be premature
I’ve long admired David Rosenberg, he’s been a rock star in market analysis for as long as I can remember. Recently, he shared an upbeat outlook on the Canadian economy and the Canadian dollar, laying out ten reasons he’s turning bullish on the Loonie for the first time in years. My aim here isn’t just to play devil’s advocate; it’s to show why, in my view, this pivot underweights the fragility of the domestic consumer and the structural realities of Canada’s economy.
The Bank of Canada, having trimmed rates to 2.25%, appears to have ended its easing cycle; however, the “mortgage renewal wave” remains a massive, unpriced risk. With roughly 60% of outstanding mortgages resetting by the end of 2026, many facing 15–20% payment hikes, household demand is highly vulnerable. If this debt-service shock suppresses the economy more than expected, the BoC may be forced to ease further than the Fed to cushion a hard landing. This would widen the interest rate gap in favor of the U.S. dollar, undermining the thesis that a narrow spread will drive the currency toward 1.30.
This consumer fragility is exacerbated by a labor market where headline gains mask a shift toward public-sector dependency. Recent data into early 2025 shows public-sector hiring outpacing the private sector, a trend that hides underlying productivity and investment challenges. While business investment intentions for 2026 show some resilience in manufacturing, Canada’s labor productivity per hour remains stubbornly at roughly 70–80% of U.S. levels. Without a sustained productivity miracle, a stronger currency risks squeezing export competitiveness. Furthermore, the 2% deterioration in living standards seen over 2020–2024, the worst five-year stretch for GDP per capita since the 1930s, suggests the economic foundation remains too weak to support a rapid appreciation toward 1.25.
Similarly, the “Buy Canada” staycation trend is more likely a symptom of affordability distress than a sign of economic strength. With trips to the U.S. falling by double digits in early 2025 while domestic visits rose, it is clear that Canadians are retreating from international travel due to decimated purchasing power. This domestic retreat coincides with the looming geopolitical risk of the CUSMA 2026 joint review under Article 34.7. As the USTR launches consultations on irritants like dairy, autos, and digital taxes, the uncertainty of a “sunset” termination or forced concessions adds a persistent risk premium to the currency. This geopolitical cloud discourages long-term foreign direct investment, keeping the Loonie from catching any sustainable tailwind from global growth.
Ultimately, while the July 2025 Big Mac Index suggests the CAD is ~9% undervalued, implying a theoretical fair value of 1.25, this is rarely a practical trading rule. Other valuation measures, such as the Real Effective Exchange Rate (REER), show the currency trading at levels consistent with the current 1.37 spot rate. If Canada powers through 2026 with resilient consumption, rising productivity, and a benign CUSMA outcome, and if the yield gap narrows, then sure, that’s a tailwind for the Loonie. But given the renewal wall, elevated household leverage, unresolved productivity issues, and trade policy uncertainty, a neutral stance still looks more realistic. With spot near 1.37, a working range of ~1.35–1.43 seems prudent until we see convincing progress on those structural constraints
MXN: Best year on record
2025 was a banner year for the “super peso.” It finished near 18 per USD, chalking up ~14% appreciation, its strongest annual gain since Mexico adopted a free‑floating FX regime in the 1990s. That rally rode a mix of domestic resilience amid U.S. trade noise, the peso’s carry appeal, and a softer U.S. dollar as markets priced a gentler Fed path.
Into December, Banxico kept things calibrated: a 25 bp cut to 7.00%, via a 4–1 split vote, and guidance that leans data‑dependent rather than an open‑ended easing cycle—appropriate with core inflation still running above 4%. The upshot: local yields remain attractive versus developed markets, so as long as risk appetite holds, the peso’s 2025 gains shouldn’t evaporate at the starting line of 2026.
Looking ahead to 2026: the base case is a short pause early in the year while Banxico assesses inflation dynamics, then gradual cuts later in 2026 if the disinflation path stays on track (Banxico’s forecast still points to headline converging toward 3% by Q3 2026). Key swing factors to watch: core services stickiness, any tariff‑related shocks, and the Fed’s pace, all of which could widen/narrow rate differentials and nudge USD/MXN around the 18 handle. In other words, expect two‑way, range‑bound price action until the policy and inflation signals break decisively.
BEER lens, kept simple: On a behavioral equilibrium basis, the peso’s fair value is driven by real rate differentials, terms of trade, and a risk premium tied to policy/trade certainty. With Banxico at 7.00% and signaling a data‑dependent pause as inflation converges, while the Fed also eases, the carry cushion that powered 2025’s rally is likely to narrow through 2026, reducing BEER support for a still‑strong MXN (and arguing for range‑bound to mildly higher USD/MXN unless nearshoring/FDI inflows keep the premium bid). Add to that a REER that’s already elevated (BIS ~131 in Nov‑2025, i.e., real appreciation), and BEER points to limited room for further real‑term MXN outperformance unless domestic disinflation outpaces trading partners or policy risks fade decisively.
Market snapshot
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: January 5 – 10
All times are in EST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
