USD/CAD rose modestly to around 1.3615 in Asian trading on Friday as the US Dollar edged higher against the Canadian Dollar. Attention later on Friday turns to the US Consumer Price Index (CPI) inflation report.
US Nonfarm Payrolls increased by 130,000 in January versus a 70,000 forecast. The Unemployment Rate eased to 4.3%, supporting expectations that the Federal Reserve may keep rates unchanged in the near term.
Oil Prices And Canadian Dollar Pressure
Crude oil prices fell on expectations of weaker global oil demand in 2026, which pressured the commodity-linked Canadian Dollar. Canada is a major oil exporter, and lower oil prices often weigh on the currency.
Federal Reserve commentary also influenced the pair, with Governor Stephan Miran saying monetary policy has passively tightened. He also said the central bank can afford lower interest rates.
Markets price nearly a 92% chance the Fed will hold rates at its next meeting. The probability of a rate cut in June is close to 50%, according to the CME FedWatch tool.
The strong US jobs report from January gives us a reason to expect the USD/CAD to climb further toward the 1.3700 level. This suggests that near-term call options on the pair could be a viable strategy. However, the upcoming US CPI report is a major risk that could quickly reverse these gains if inflation comes in cooler than expected.
Fed Signals And Volatility Strategies
The weakness in the Canadian dollar is also being driven by falling crude oil prices, which weigh on the commodity-linked currency. WTI crude has recently broken below the $70 per barrel support level, a significant drop from its fourth-quarter 2025 highs of around $85. This trend reinforces the case for a higher USD/CAD, as Canada’s economy is closely tied to energy exports.
Despite the dollar’s current strength, conflicting messages from the Federal Reserve are creating uncertainty for the coming months. We remember the Fed’s series of pauses throughout the second half of 2025, which were driven by similar mixed data signals. Given the nearly 50% chance of a rate cut by June, traders might consider strategies like straddles to profit from the expected volatility.
All eyes are on the US inflation data due later today. We saw the headline CPI for December 2025 come in at 3.1%, and a hotter-than-expected number today would likely push USD/CAD through the key resistance levels we saw late last year. A softer print, however, would validate dovish Fed comments and could send the pair sharply lower.
