The Canadian Dollar strengthened against the US Dollar at the start of the week, with USD/CAD dropping 0.65%. The pair was trading near 1.3560, showcasing a bearish trend after breaking a long-term uptrend.
The Canadian Dollar gained momentum after a strong jobs report lowered the unemployment rate to 6.5%. The BoC’s cautious stance on easing monetary policy further supported the currency. On Monday, USD/CAD fell below 1.3600, with 1.3680 acting as resistance, as short-term buying interest waned.
Key Factors Impacting The Canadian Dollar
Key factors impacting the Canadian Dollar include the BoC’s interest rate decisions, oil prices, economic health, inflation, and the trade balance. Higher interest rates and rising oil prices are typically supportive of CAD. The BoC’s adjustments in interest rates to maintain inflation within 1-3% also play an essential role in influencing the currency.
Macroeconomic data significantly impacts the Canadian Dollar, with strong economy indicators such as GDP, PMIs, and employment being beneficial for CAD. A robust economy may attract foreign investment and prompt the BoC to raise interest rates, strengthening the currency. Conversely, weak economic data may lead to a depreciation of CAD.
Based on the current bearish structure, we see the US Dollar weakening against the Canadian Dollar. The pair is trading well below its key moving averages, reinforcing the downward trend that took hold when we broke the long-term uptrend during 2025. This suggests that traders should favor strategies that profit from a further decline in USD/CAD.
Given the sustained downside pressure, we should consider buying put options. The recent failure at the 1.3700 resistance level and the break below 1.3600 confirms bearish momentum is building again. Targeting strikes around the 1.3500 support zone or even lower towards the January 30 low of 1.3480 seems like a reasonable approach for the coming weeks.
Fundamental Support For Canadian Dollar Strength
This outlook is supported by fundamental factors, especially after the recent Canadian jobs report showed the unemployment rate falling to 6.5%. This strength makes it less likely that the Bank of Canada will cut interest rates soon, keeping the Canadian dollar supported. We’re seeing market odds for a rate cut at the Bank of Canada’s March 5th meeting drop below 20%, which is a significant shift from where they were at the start of the year.
Furthermore, the price of crude oil, a key Canadian export, provides a significant tailwind. WTI crude has been climbing, recently trading above $86 per barrel, its highest level in four months. Historically, a sustained period of oil prices above $80, like we saw in late 2024, has corresponded with periods of Canadian Dollar strength.
On the other side of the pair, recent data from the United States is weighing on the Greenback. The latest US inflation report for January came in slightly cooler than anticipated at 2.8%, fueling speculation that the Federal Reserve may be closer to cutting rates. This policy divergence, with a cautious Bank of Canada and a potentially easing Fed, should continue to push USD/CAD lower.
For managing risk, we should watch the 1.3680-1.3710 area closely as a key resistance zone. A sustained and unexpected move back above this level would challenge the bearish thesis. Therefore, we could use short-dated call options with a strike price near 1.3750 as a relatively cheap hedge against any sharp, unforeseen reversal.
