USD\/CAD rose from near 1.3500 to an over one-week high in Tuesday\u2019s Asian session, trading just under the mid-1.3600s. The move came ahead of Canada\u2019s latest inflation release.<\/p>\n
Canada\u2019s headline CPI is forecast to stay at 2.4% year on year in January, above the Bank of Canada\u2019s target. The data may affect expectations for the BoC\u2019s next policy steps and the near-term direction of the Canadian dollar.<\/p>\n
Softer crude oil prices weighed on the commodity-linked Canadian dollar, while the US dollar held modest gains. Gains in USD\/CAD were limited by market expectations for a more dovish Federal Reserve.<\/p>\n
After softer US inflation data on Friday, markets increased bets on a Fed rate cut in June. Pricing also points to at least two 25-basis-point cuts in 2026, alongside concerns about the Fed\u2019s independence.<\/p>\n
Attention now turns to the FOMC minutes on Wednesday and the US PCE Price Index on Friday. The BoC core CPI excludes eight volatile items: fruits, vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transportation and tobacco products.<\/p>\n
The USD\/CAD pair is pushing towards the mid-1.3600s, showing strength after bouncing from the 1.3500 level last week. This week, we see traders pausing ahead of the critical Canadian inflation report. The outcome will be the primary driver for the Canadian dollar’s direction in the near term.<\/p>\n
We are watching the Canadian Consumer Price Index (CPI) very closely, with expectations that it will hold at 2.4% for January. Looking back at the data from late 2025, Canadian inflation proved sticky, consistently staying above the Bank of Canada’s 2% target. A number higher than 2.4% would likely strengthen the Canadian dollar as it would suggest the BoC has to remain on hold, while a miss would weaken it.<\/p>\n
On the other side of the pair, the US dollar is finding some footing, but the broader sentiment is cautious due to a dovish Federal Reserve. Current market pricing, reflected in fed funds futures, indicates a greater than 70% probability of an interest rate cut by the June 2026 meeting. This follows a pattern we observed in 2025 where rate cut expectations were consistently a major theme for the greenback.<\/p>\n
Weakness in crude oil prices is also weighing on the commodity-linked loonie. WTI crude has recently dipped below $75 a barrel, a notable drop from the highs over $80 seen at the start of the year. This trend acts as a headwind for the Canadian dollar and supports a higher USD\/CAD, complicating the outlook for those betting on a stronger loonie.<\/p>\n
For the immediate term, we should consider strategies that benefit from a spike in volatility around the Canadian CPI release. Buying options straddles on USD\/CAD, which profit from a large price move in either direction, could be a prudent way to trade the data release without betting on the direction. This allows us to capitalize on the market’s reaction, whichever way it goes.<\/p>\n
Looking out over the next few weeks, the divergence between a neutral Bank of Canada and a dovish Fed will be the main story. If this week\u2019s US Personal Consumption Expenditure (PCE) data comes in soft, it will reinforce the Fed rate cut narrative. In that scenario, selling out-of-the-money call options on USD\/CAD could be a viable strategy to position for a capped upside in the pair.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" USD\/CAD hits over one-week high near mid-1.3600s as markets await Canada CPI, Fed signals.<\/p>\n","protected":false},"author":62,"featured_media":16967,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-42041","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/42041","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=42041"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/42041\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16967"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=42041"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=42041"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=42041"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}