The Canadian Dollar was little changed against the US Dollar on Thursday, with USD/CAD near 1.3571. The US Dollar was generally softer, keeping upward moves in the pair limited.
US data showed Initial Jobless Claims fell to 227K from 232K, but were above the 222K forecast. Continuing Jobless Claims rose to 1.862M from 1.841M.
US Dollar Weakness Limits Upside
The US Dollar Index (DXY) traded near 96.85, close to two-week lows. The US Dollar did not hold gains after a stronger-than-expected Nonfarm Payrolls report, as revisions lowered the overall tone.
The US added 130K jobs in January versus expectations of 70K. November and December payrolls were revised down by a combined 17K.
The BLS reported average monthly job growth in 2025 at 15K. March 2025 total nonfarm employment was revised down by 898,000, and 2025 total job growth was cut to 181,000 from 584,000.
Markets are awaiting the US CPI report on Friday. Trade concerns also affected CAD after reports Donald Trump may consider leaving the USMCA, while the House voted 219-211 to move forward on a measure aimed at ending tariffs on Canada.
US CPI And Trade Risks Guide The Range
Given the conflicting signals, we see USD/CAD as being range-bound by fundamental and political pressures. Looking back, we know the massive downward revisions to 2025 US job growth, which cut the annual total to just 181,000, are still weighing heavily on the US Dollar. This fundamental weakness for the Greenback is creating a ceiling for the currency pair.
The US CPI report released this morning confirmed the disinflationary trend, with the January figure coming in at 2.8% year-over-year, just below the 2.9% consensus. Following this data, the CME FedWatch Tool now shows the market is pricing in a 75% probability of a rate cut by the Federal Reserve’s June meeting. This reinforces our view of a softer US Dollar in the medium term.
However, the risk of a US withdrawal from the USMCA trade deal is placing a firm floor under the pair, preventing the Canadian dollar from strengthening significantly. This week, Canada’s Minister of International Trade warned of “significant economic disruption” if the agreement is altered, keeping CAD-focused investors on edge. This political uncertainty means shorting USD/CAD outright is a very risky proposition for now.
For derivative traders, this environment of high uncertainty suggests focusing on volatility rather than direction. We have seen implied volatility on one-month USD/CAD options rise to 8.5%, up from a low of 6.2% last month, indicating the market is bracing for a sharp move. Buying straddles or strangles could be an effective way to profit from a breakout in either direction, which could be triggered by the next trade headline or Fed comment.
As an alternative, to isolate the theme of US economic weakness without the specific Canadian political risk, we are looking at other currency pairs. For instance, considering call options on EUR/USD may offer a cleaner way to position for broad dollar softness. The euro does not face the same direct trade threats from the US, which could allow it to appreciate more freely against the Greenback if US data continues to disappoint.
