USD/CAD is still trading under 1.3850, driven by a stronger Canadian Dollar (CAD) thanks to rising oil prices. During Thursday’s Asian trading session, it remained around 1.3830. West Texas Intermediate (WTI) oil held steady at about $60.50 per barrel after increasing for four straight days. Although there are concerns about oversupply, easing geopolitical tensions have helped reduce risks related to energy demand.

US Geopolitical Influence

US geopolitical events, like President Trump delaying tariffs on Europe, have supported the US Dollar, limiting its decline against the CAD. Traders are now looking forward to upcoming economic data, including Initial Jobless Claims and GDP Annualized, for further insights. The Federal Reserve is being cautious about changing interest rates without clearer signals on inflation reaching the 2% target. Market predictions still point towards a possible 50 basis point rate cut later this year. The Canadian Dollar’s performance relies heavily on the Bank of Canada’s interest rates, oil prices—Canada’s biggest export—and overall economic health. Economic indicators like GDP and inflation greatly impact the CAD’s value, with strong data typically benefiting the currency. The Bank of Canada’s interest rate policies and credit conditions play a significant role in the CAD’s value, while a robust economy supports a higher currency value. Last year, USD/CAD stayed below 1.3850 largely due to changing geopolitics and oil prices just above $60 a barrel. The market focused on potential tariff delays and their impact on global demand. This created a very different situation than what we see today.

Economic Fundamentals and Currency Strategies

In late January 2026, the situation has shifted considerably. WTI crude oil recently traded above $85 per barrel due to ongoing OPEC+ supply cuts and unexpectedly strong winter demand. This change has pushed USD/CAD down to the low 1.3500s, highlighting a much stronger Canadian dollar linked to commodities. The focus has moved from geopolitical issues to core economic fundamentals. Traders are now concentrating on the policy differences between the Bank of Canada (BoC) and the Federal Reserve. With the latest US PCE inflation data for December 2025 at 2.7%, the Fed is indicating a “higher for longer” position on interest rates. This supports the US dollar against most currencies. Canada’s economy is showing impressive strength, with December 2025 employment data from Statistics Canada adding over 40,000 jobs, beating expectations. This robust data, alongside Canadian inflation slightly above the BoC’s target, suggests the BoC may be one of the last G7 central banks considering rate cuts. This outlook continues to favor the Canadian dollar. In this environment, traders may consider buying Canadian dollar call options against the US dollar, anticipating a move toward 1.3400. This strategy allows traders to benefit from the Canadian dollar’s strength while limiting potential losses if the Federal Reserve becomes more aggressive. With volatility trending lower, options are a cost-effective way to express this view. Alternatively, for those wanting to hedge or take a more direct approach, shorting USD/CAD futures contracts could be an option. This strategy anticipates that the interest rate difference will continue to favor the Canadian dollar, particularly if oil prices remain high through the first quarter. Any dip in US economic data in the coming weeks could accelerate a downward trend in this pair. Create your live VT Markets account and start trading now.

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