HSBC Global Research says USD/CAD mainly follows the wider US Dollar trend. The pair is trading slightly below levels implied by interest rate differentials, pointing to Canadian Dollar resilience.
Higher oil prices, linked to tensions in the Middle East, are supporting the Canadian Dollar. Oil is a key Canadian export and can affect currency moves.
Tariff Uncertainty And Business Confidence
Tariff uncertainty is described as a factor that could weigh on business confidence. The report notes recent improvements in that uncertainty.
HSBC also points to a potentially less aggressive US trade stance ahead of the US mid-term elections. On that basis, it expects a sharp rise in USD/CAD to be unlikely.
The piece notes it was produced with the help of an AI tool and reviewed by an editor. It also describes FXStreet Insights Team as journalists selecting market observations from external experts and analysts.
As of today, February 25, 2026, we see the Canadian dollar’s resilience continuing to hold, much like the dynamic observed back in 2025. The USD/CAD pair is currently hovering near 1.3550, a level that still feels suppressed when looking purely at historical interest rate spreads. This suggests underlying strength in the loonie is a persistent theme traders must respect.
Energy Prices And Policy Divergence
The support from elevated energy prices has not gone away. WTI crude futures are holding firm above $85 a barrel, bolstered by ongoing geopolitical tensions and a tighter supply outlook than we saw last year. This provides a fundamental floor for the Canadian dollar, making it costly to bet against.
From a policy standpoint, the dynamic has become clearer since last year. With the latest Canadian CPI data coming in at a stubborn 2.9%, the Bank of Canada appears hesitant to cut rates, while markets are pricing in a 75% chance of a US Fed cut by June. This narrowing of the rate differential is a significant headwind for any sustained USD/CAD rally.
The calmer trade rhetoric we anticipated ahead of the upcoming US mid-term elections has largely materialized. Looking back at the concerns from 2025, the feared tariff uncertainty has not escalated, allowing for more stable business investment flows between the two countries. This removes a key catalyst that could have otherwise sparked a sharp move higher in the pair.
For derivative traders, this environment suggests the upside for USD/CAD is capped in the coming weeks. Selling call options with strike prices around the 1.3700 level could be a viable strategy to collect premium from expected range-bound activity. Alternatively, establishing bearish call spreads would limit risk while profiting if the pair remains sideways or drifts lower.
We must remain aware that a sudden global risk-off event could quickly change this outlook, driving flight-to-safety flows into the US dollar. A significant drop in oil prices below $75 would also undermine the loonie’s core support. Therefore, any short-volatility or bearish positions should be managed with clear risk parameters.
