The Canadian Dollar (CAD) continues to decline against the US Dollar (USD) as the USD/CAD pair trades around 1.3676, a 0.44% increase. Strong US economic data, particularly an increase in the ISM Manufacturing PMI to 52.6, boosts the Greenback, while falling Oil prices weigh on the CAD.
The US Employment Index improved to 48.1, and New Orders Index increased to 57.1, marking a positive trend. The Prices Paid Index edged higher to 59.0, despite being below market expectations. The S&P Global Manufacturing PMI also rose to 52.4. Meanwhile, the US Dollar Index (DXY) is trading close to 97.62, supported by a hawkish Federal Reserve outlook, following the nomination of Kevin Warsh.
Canadian Economic Outlook
In Canada, the S&P Global Manufacturing PMI rose to 50.4, indicating modest expansion. Despite this, the Canadian Dollar faces pressure from lower Oil prices, with West Texas Intermediate trading around $61.78 per barrel. Attention shifts to upcoming labour market releases in both countries.
Key factors influencing the CAD include interest rates set by the Bank of Canada, Oil prices, Canada’s economic health, and its Trade Balance. Economic data and central bank decisions can significantly impact the CAD’s value, and higher inflation often leads to increased central bank interest rates, benefiting the currency.
Based on today’s date, February 2, 2026, the US dollar is showing significant strength against the Canadian dollar, and we should position for this trend to continue. The strong US manufacturing data, especially the jump in new orders, points to an accelerating American economy. This contrasts sharply with Canada’s much slower recovery from a difficult 2025.
Factors Influencing Currency Trends
The American economic outperformance is not isolated to manufacturing. Recent statistics from last week’s Conference Board Consumer Confidence Index showed a jump to 114.8, the highest level we have seen since the final quarter of 2024. This signals strong consumer demand, which will continue to support the US dollar.
Meanwhile, the Canadian economy shows signs of continued fragility. Despite a small improvement in manufacturing, we saw last week that Canadian housing starts for January unexpectedly fell by 8%, indicating that key sectors remain weak. This economic divergence between the two countries is a core reason to favor the US dollar.
The severe drop in oil prices is another major factor weighing on the Canadian dollar. With West Texas Intermediate crude falling below $62 a barrel, it has broken through the key support levels we saw in the fourth quarter of 2025. As Canada is a major oil exporter, sustained weakness in energy prices will directly harm its terms of trade and currency value.
We are also seeing a growing difference in central bank policy expectations. The nomination of Kevin Warsh to lead the Federal Reserve suggests a more hawkish, data-driven path in the US. In contrast, softer Canadian data will likely force the Bank of Canada to remain on the sidelines, creating a policy gap that benefits the greenback.
Given this environment, we should consider buying USD/CAD call options in the coming weeks. Targeting strike prices above the 1.3700 level is a logical first step, with potential to aim for 1.3800. This Friday’s employment reports from both countries will be a critical catalyst, and a strong US NFP number could easily push the pair through recent resistance.
