USD/CAD rose slightly to about 1.3580 in Asian trading on Thursday, as the US Dollar strengthened against the Canadian Dollar after US jobs data beat forecasts. Markets are now focused on the US CPI inflation report due on Friday.
The US economy added 130,000 jobs in January versus a 70,000 consensus, and the unemployment rate fell to 4.3% from 4.4%. These figures reduced expectations of another Federal Reserve rate cut by midyear, supporting the US Dollar.
Us Cpi In Focus
Friday’s CPI is expected to show headline and core inflation at 2.5% year on year in January. Both measures are also forecast to rise 0.3% month on month, and a weaker result could weigh on the US Dollar.
Geopolitical risks may lift oil prices, which can support the Canadian Dollar because Canada is a major oil exporter. The Canadian Dollar is also influenced by Bank of Canada interest rates, inflation, domestic growth data, and the trade balance.
The Bank of Canada aims to keep inflation within 1–3% by adjusting interest rates, and it can also use quantitative easing or tightening. Oil price moves can affect the trade balance, while indicators such as GDP, PMIs, employment, and sentiment can shift expectations for growth and policy.
With the USD/CAD pair holding near 1.3580, our immediate focus is the US Consumer Price Index report tomorrow. The strong January jobs report has already priced in a more hawkish Federal Reserve, but we remember how the October 2025 CPI data missed expectations and caused a sharp reversal. Given the consensus forecast for a 2.5% annual rise, options strategies that profit from a significant price move in either direction, such as a long straddle, could be prudent to deploy before the announcement.
Policy Divergence And Positioning
The policy divergence between the US and Canada is a key theme we are trading. The spread between the US and Canadian 2-year bond yields has recently widened to over 50 basis points, favoring the US dollar as capital seeks higher returns. We should consider using futures to maintain a core long USD/CAD position, as the Fed’s stance seems firmer than the Bank of Canada’s, which is still contending with softer domestic growth figures from the last quarter of 2025.
We must also watch oil prices, as crude is a primary driver for the Canadian dollar. West Texas Intermediate (WTI) has been trying to break above $85 per barrel amid renewed supply concerns in the Middle East, which provides a potential headwind for any further USD/CAD gains. Traders who are long the pair should consider buying out-of-the-money put options as a hedge against a sudden spike in oil prices that would strengthen the loonie.
Looking back at the volatility spikes of 2025, it’s clear that economic data surprises are creating significant intraday swings. Implied volatility for USD/CAD weekly options has ticked up ahead of Friday’s CPI, suggesting the market is bracing for a move. This makes selling options far from the current price an attractive strategy for earning premium, but only for traders with a high tolerance for risk.
Longer-term, the relative economic health of the US versus Canada supports a structurally higher USD/CAD exchange rate. US GDP growth for the fourth quarter of 2025 came in at a robust 2.9%, significantly outpacing Canada’s 1.1% for the same period. We can use longer-dated call options to express this bullish view while limiting our initial capital outlay.
