USD/CAD rose for a fourth day and traded near 1.3628 as the US Dollar stayed firm. Trading was range-bound due to thin liquidity from US President’s Day and Canada’s Family Day.
Markets are focused on Canada’s January CPI on Tuesday. Forecasts are 0.1% month-on-month after -0.2% in December, and 2.4% year-on-year, unchanged.
Bank Of Canada Policy Outlook
The Bank of Canada said in January that policy is aimed at keeping inflation near 2%. It also said the current policy rate “remains appropriate”, while noting headwinds from trade uncertainty linked to US tariffs.
Oil prices offered some support to the Canadian Dollar. WTI traded around $63.25, up nearly 1.0% on the day.
In the US, rate-cut expectations eased after labour data showed stabilising conditions. Nonfarm Payrolls rose by 130K after 48K, and unemployment fell to 4.3% from 4.4%.
US inflation data was softer, with CPI at 0.2% MoM in January versus 0.3% in December, and 2.4% YoY versus 2.7%. Traders still price more than 50 bps of cuts in 2026, while DXY hovered near 97.00.
Upcoming Risk Events
The next data points include FOMC minutes on Wednesday, then core PCE and Q4 GDP on Friday.
We are seeing the USD/CAD pair move higher, holding near 1.3550 in quiet trading. Today’s thin liquidity, due to holidays in both the US and Canada, is keeping the pair within a tight range. This market inactivity presents a temporary calm before key data releases later this week.
Attention is focused on Canada’s inflation report due this Tuesday. Recent data showed the Canadian economy added a stronger-than-expected 37,000 jobs in January 2026, but wage growth has been cooling, creating a mixed picture for the Bank of Canada. A hot CPI reading above the current 2.8% annual rate would likely force the BoC to delay any planned interest rate cuts, strengthening the loonie.
Meanwhile, the US Dollar is finding support as the market dials back expectations for aggressive Federal Reserve rate cuts. The January 2026 jobs report showed a solid gain of 190,000 payrolls, and last week’s CPI data came in slightly firm at 3.2%, reminding us that the path back to 2% inflation is not a straight line. This persistent inflation suggests the Fed can afford to remain patient.
This is a different environment from what we saw around this time in 2025. Back then, we were looking at a market pricing in over 50 basis points of Fed cuts for the year, with inflation easing to 2.4%. The dollar was also facing headwinds from trade policy uncertainty, a factor that has since faded.
Elevated oil prices are providing a floor for the Canadian dollar, preventing a more significant decline. With WTI crude currently trading firmly above $85 a barrel due to ongoing supply discipline from OPEC+ and steady global demand, it continues to be a supportive factor for Canada’s currency. This helps offset some of the greenback’s underlying strength.
Given the expected volatility around the upcoming data, we should consider buying options to protect against sharp moves. A straddle on USD/CAD before Tuesday’s CPI release could be an effective way to play a potential breakout in either direction. For now, the pair seems capped by resistance at 1.3600, but a surprisingly strong inflation number could easily push it back toward the 1.3450 support level.
