USD/CAD is stabilising around 1.3790, despite recent losses, as Oil prices begin to recover. A rise in West Texas Intermediate Oil, trading near $59.60 per barrel, is supporting CAD, given Canada’s role as a major oil exporter to the US.
Saudi Aramco is curbing oversupply concerns by referencing strong demand in emerging markets. Global Oil consumption has reached record highs and is projected to grow through 2026, boosting the Canadian Dollar’s prospects.
Geopolitical Uncertainties Impact USD CAD
The US Dollar is under pressure amid geopolitical uncertainties, impacting USD/CAD. Tensions arise from President Trump’s initial threats of tariffs against European nations opposing his plans, which eased after a potential deal with NATO.
Economic uncertainties continue due to unclear US-NATO agreements and European leverage on US assets. Meanwhile, US GDP rose to an annualised 4.4% in Q3 2025, surpassing expectations, while jobless claims reached 200,000, slightly above forecasts.
The Canadian Dollar is influenced by several key factors. Oil prices and Canada’s economic health, determined by interest rates, inflation, and trade balance, significantly affect CAD value. A strong economy boosts CAD, encouraging foreign investment and interest rate adjustments by the Bank of Canada.
Given the current situation on January 23, 2026, we see the USD/CAD pair caught in a tug-of-war. The Canadian dollar is gaining strength from rebounding oil prices, while the US dollar is supported by robust economic data. This conflict suggests that range-trading or volatility-based strategies could be effective in the coming weeks.
Canadian Dollar Versus Economic Indicators
The primary support for the Canadian dollar is the price of West Texas Intermediate crude, now trading near $59.60 a barrel. Historically, we have observed a strong negative correlation between USD/CAD and oil prices, often around -0.7, meaning as oil rises, the pair tends to fall. With Saudi Aramco signaling strong demand for 2026, further oil price gains could push USD/CAD below the 1.3700 level.
On the other hand, the US economy is showing remarkable strength, which should not be ignored. The 4.4% GDP growth reported for Q3 of 2025 and last week’s low jobless claims of 200,000 point to a resilient economy that may keep the Federal Reserve from cutting interest rates. This underlying economic strength provides a solid floor for the US dollar and could limit the downside for the USD/CAD pair.
Geopolitical uncertainty surrounding the US-NATO agreement on Greenland adds another layer of complexity, currently weighing on the US dollar. We see this as a driver of short-term volatility, making outright directional bets risky. The market’s reaction to the Danish pension fund divesting from US Treasuries shows how sensitive sentiment is to these developments.
Considering these conflicting signals, we believe derivatives that profit from increased price swings are attractive. Buying options straddles on USD/CAD, which involves purchasing both a call and a put option with the same strike price and expiry, could be a prudent way to trade the expected volatility. This strategy can be profitable if the pair makes a significant move in either direction before the options expire.
For traders with a directional bias, a cautious approach is best. Given the momentum in oil prices, we could consider entering modest short positions on USD/CAD, but hedging them by purchasing out-of-the-money call options. This protects against any sudden reversal driven by positive US economic surprises or a de-escalation of geopolitical tensions.
