USD\/CAD rose to about 1.3645 in Asian trading on Wednesday. The Canadian dollar weakened after softer inflation data and lower crude oil prices.<\/p>\n
Statistics Canada reported that Canada\u2019s CPI inflation eased to 2.3% year on year in January from 2.4% in December. The reading missed the 2.4% market forecast, adding to expectations of another Bank of Canada rate cut.<\/p>\n
Oil prices fell as tensions between the US and Iran eased. Iran\u2019s Foreign Minister Abbas Araqchi said both sides agreed on the main \u201cguiding principles\u201d in talks on the nuclear dispute, while noting a deal is not imminent.<\/p>\n
Canada is a major oil exporter, and lower oil prices tend to weigh on the Canadian dollar. Markets are now focused on the FOMC Minutes due later on Wednesday.<\/p>\n
The Minutes may provide clues on the Federal Reserve\u2019s interest rate path. A dovish tone could push the US dollar lower in the near term.<\/p>\n
Looking back to this time in February 2025, we saw the market correctly anticipate a Bank of Canada rate cut due to falling inflation. The BoC did follow through with cuts in April and June of 2025, which helped push the USD\/CAD pair towards the 1.39 level by mid-year. Today, however, the situation has evolved.<\/p>\n
The narrative for Canada has shifted from disinflation to persistent price pressures. Statistics Canada’s most recent report for January 2026 showed CPI ticking up to 2.9%, which is well above the figures we saw last year and reduces the probability of any BoC rate cuts in the near term. This renewed inflation provides underlying support for the Canadian dollar that was missing in early 2025.<\/p>\n
Last year, we saw WTI crude oil prices softening on geopolitical calming, which weighed on the loonie. In contrast, crude oil is now trading robustly above $82 per barrel due to tighter global supply forecasts for 2026, providing a significant tailwind for the commodity-linked CAD. This is a reversal from the dynamic we observed twelve months ago.<\/p>\n
While the Federal Reserve was a major focus last year, their stance of holding rates steady through 2025 ultimately created a wide policy divergence with the Bank of Canada. Now, with Canadian inflation proving sticky, that divergence is expected to narrow. This change in interest rate outlook is making the US dollar less attractive relative to its Canadian counterpart.<\/p>\n
Given this context, the path of least resistance for USD\/CAD appears to be lower. Traders should consider strategies that benefit from a declining or range-bound pair, such as buying CAD call options or selling out-of-the-money USD call options. These positions capitalize on the potential for the pair to test the 1.3500 support level in the coming weeks.<\/p>\n
A key risk to this view is a surprisingly strong US economic report that reignites hawkish sentiment from the Federal Reserve. Therefore, using a bearish put spread on USD\/CAD could be a prudent way to define risk. This strategy allows traders to profit from a modest downturn while protecting against an unexpected surge in the US dollar.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" USD\/CAD climbed to 1.3645 as softer Canadian inflation and falling oil boosted rate-cut expectations.<\/p>\n","protected":false},"author":62,"featured_media":16959,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-42143","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\/42143","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=42143"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/42143\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16959"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=42143"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=42143"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=42143"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}