The Canadian Dollar (CAD) has gained ground, reaching the low 1.38s due to a weaker US Dollar (USD). This shift is not influenced by internal factors according to Scotiabank’s strategists.
The USD/CAD has broken key support levels, indicating potential further declines. The CAD is currently trading just above its fair value of 1.3865, a position not seen since early in the year.
Canadian Inflation And Business Outlook
Slightly stronger than expected Canadian inflation data and a marginally improved Business Outlook Survey for Q4 have supported the CAD. Despite this, the primary driver of the CAD’s current strength is the generally weaker USD.
The USD/CAD losses through key levels at 1.3855/60 are targeting short-term lows at 1.3790/95. Recent trading patterns show USD stalling against major moving averages and falling under the 200-day MA signal. Continued USD declines throughout the week may confirm strong resistance in the low 1.39 zone, with possible further weakness ahead.
Looking back a year to January 2025, we saw the USD/CAD pair break below key support at 1.3855, a move driven almost entirely by broad weakness in the US dollar. At the time, Canadian-specific factors like inflation were only a minor part of the story. The technical breakdown then pointed towards further downside for the pair.
As of today, January 20, 2026, that downward trend has continued, with the pair now trading near 1.3550. Unlike last year, however, this strength is now supported by distinctly Canadian factors, including a more hawkish tone from the Bank of Canada concerned about persistent wage growth. The latest Labour Force Survey from Statistics Canada, which showed a robust gain of 55,000 jobs in December 2025, further reinforces this domestic strength.
Canadian Economic Factors And Oil Prices
This CAD-positive narrative is amplified by external factors, as West Texas Intermediate crude oil prices are holding firm above $85 a barrel. This contrasts with recent data out of the United States, where December 2025 retail sales came in weaker than expected, falling by 0.5% and adding to pressure on the US dollar. The combination of strong Canadian data and firm oil prices creates a much stronger fundamental case for CAD appreciation than we saw a year ago.
Given this environment, traders should consider positioning for further downside in USD/CAD in the coming weeks. Buying put options on USD/CAD with strike prices around 1.3400 could offer a favorable risk-reward profile to capitalize on this downward momentum. For those with existing US dollar exposure, hedging against further CAD appreciation through forward contracts or options collars is now a prudent strategy.
