The Canadian Dollar (CAD) has strengthened, reaching around 1.38 due to a weaker US Dollar (USD). According to strategists at Scotiabank, this change isn’t affected by domestic factors. The USD/CAD pair has broken significant support levels, suggesting further declines might occur. The CAD is now trading just above its fair value of 1.3865, a position it hasn’t seen since earlier this year.

Canadian Inflation and Business Outlook

Recent Canadian inflation data was slightly stronger than expected, and the Business Outlook Survey for Q4 improved a bit, which has helped the CAD. However, the main reason for the CAD’s strength remains the weak USD. The USD/CAD has dropped through key levels of 1.3855/60, aiming for short-term lows at 1.3790/95. Recent trading shows the USD has stalled against major moving averages and is below the 200-day moving average. If the USD continues to decline this week, it may indicate strong resistance in the low 1.39 range and more weakness to come. Looking back to January 2025, the USD/CAD pair broke below critical support at 1.3855, mainly due to weakness in the USD. At that time, Canadian-specific factors like inflation were not as influential. The technical breakdown indicated potential further declines. As of January 20, 2026, this downward trend persists, with the pair now trading near 1.3550. Unlike last year, however, the CAD’s strength is now backed by Canadian factors, such as a more aggressive stance from the Bank of Canada regarding ongoing wage growth. Additionally, the latest Labour Force Survey from Statistics Canada showed a significant gain of 55,000 jobs in December 2025, boosting domestic strength.

Canadian Economic Factors and Oil Prices

The positive outlook for the CAD is further supported by external factors, with West Texas Intermediate crude oil prices remaining above $85 a barrel. In contrast, recent US data showed December 2025 retail sales were weaker than expected, falling by 0.5%, which put additional pressure on the USD. The strong Canadian data combined with stable oil prices makes a compelling case for CAD appreciation compared to a year ago. In this environment, traders might want to position for further declines in USD/CAD in the coming weeks. Purchasing put options on USD/CAD with strike prices around 1.3400 could provide a good risk-reward opportunity to take advantage of this downward trend. For those already exposed to the USD, hedging against further CAD appreciation with forward contracts or options collars is a wise move. Create your live VT Markets account and start trading now.

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