The Canadian Dollar (CAD) has softened slightly in quiet trading sessions, impacted mainly by a stronger US Dollar (USD). The CAD’s fair value estimate has seen a minor increase according to Scotiabank analysts, reaching 1.3632.<\/p>\n
The CAD’s losses are attributed to the overall strength of the USD, despite having little influence from stronger commodities or a positive risk environment. These elements have led to a small nudge in the CAD’s fair value, which may support better selling interest for the USD on minor gains through the upper 1.36s.<\/p>\n
The US dollar is showing broad strength, which is pushing the USD\/CAD exchange rate into the upper 1.36s. Despite a positive mood in the markets and firmer commodity prices, the Canadian dollar is not finding much support. This suggests the current move is driven more by momentum in the US dollar itself.<\/p>\n
We see that the underlying value for the CAD is actually improving, with a fair value estimate now near 1.3632. This indicates the current climb in the exchange rate may be overextended. Last week’s US non-farm payrolls report showed a slight cooling in the American labor market, with 160,000 jobs added, tempering expectations for further aggressive moves from the Federal Reserve which we saw through late 2025.<\/p>\n
On the other hand, Canada\u2019s inflation data for January came in a little hotter than expected at 2.9%, keeping pressure on the Bank of Canada to remain cautious. This divergence, coupled with WTI crude oil prices holding firmly above $82 per barrel, should provide a floor for the loonie. These factors suggest that selling US dollars on rallies against the Canadian dollar is a sensible approach.<\/p>\n
For derivative traders, this setup points towards a range-bound market in the coming weeks. The pair’s implied volatility has dipped below 7% for one-month options, reflecting a market that isn’t anticipating a major breakout above the 1.3750 resistance level. This environment could make selling premium, through strategies like short strangles or call spreads, an attractive option.<\/p>\n
We saw a similar dynamic in the second quarter of 2025 when the pair repeatedly failed to hold gains above 1.37 as oil firmed up. Therefore, we should view moves towards that level as an opportunity to position for a reversion back towards the 1.35s. Any unexpected hawkish commentary from the Bank of Canada in its upcoming statements would likely accelerate such a move.<\/p>\n
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