USD/CAD fell for a fourth day and touched its lowest level in nearly two weeks on Wednesday. It held above 1.3500 ahead of the delayed US Nonfarm Payrolls (NFP) release.
The NFP report was originally due in early February and is being watched for clues on the Federal Reserve’s 2026 rate-cut path. Dovish Fed expectations kept the US dollar near its lowest level in over a week.
Drivers Behind The Move
Weak US Retail Sales on Tuesday, alongside softer labour-market signals, led markets to cut fourth-quarter US growth estimates. This supported expectations of policy easing in 2026, while concerns about Fed independence and a risk-on tone reduced demand for the dollar.
Higher crude oil prices supported the Canadian dollar. This was reinforced by the Bank of Canada’s neutral stance after it held rates in January due to elevated economic and geopolitical uncertainty.
The BoC said uncertainty is affecting its 2026 rate projections, which range from cuts to hikes to holds. Traders are watching for a clear move below 1.3500 before adding to bearish positions.
NFP measures new US jobs in non-agricultural businesses and is produced by the Bureau of Labor Statistics. The data can be volatile, revised, and market impact also depends on the unemployment rate and revisions.
Trade Setup And Positioning
The continued slide in USD/CAD is creating clear opportunities for us. Weakness in the US Dollar is meeting strength in the Canadian Loonie, which is being pushed higher by rising crude oil prices. WTI crude has now topped $87.50 per barrel, its highest level in three months, directly supporting the commodity-linked CAD.
Expectations for Federal Reserve rate cuts are building, which is weighing on the dollar. Looking back at last year, the soft economic data from late 2025 is continuing, with January’s retail sales falling by 0.9% and the recent ADP employment report showing a disappointing 95,000 new jobs. This trend reinforces the market’s belief that the Fed will have to ease policy.
Meanwhile, the Bank of Canada’s position looks very different, giving us a clear policy divergence to trade. Canadian inflation remains sticky, holding at 2.9% last month, giving the BoC little reason to consider cutting rates soon. This starkly contrasts with the dovish sentiment surrounding the Fed.
This backdrop makes shorting USD/CAD through futures or buying put options an attractive strategy ahead of the Nonfarm Payrolls report. A decisive break below the 1.3500 level, especially on a weak NFP number, could trigger a rapid move lower. Such a move would confirm that the current downtrend has further to run.
We should remember the sharp sell-off in the third quarter of 2025, when a similar pattern of weak data led to a surprise NFP miss. That event saw the pair drop significantly, and buying out-of-the-money puts with a strike price around 1.3450 could offer a low-cost way to position for a repeat. Any attempted rallies in the pair before the NFP release should be viewed as opportunities to build short positions.
