Canadian growth is expected to reach 0.7% year-on-year, with the USD playing a significant role.

    by VT Markets
    /
    Jan 30, 2026
    Canadian growth is expected to rise by 0.7% compared to last year, but this figure is seen as outdated. The Bank of Canada is likely to take a neutral stance, with possible future interest rate cuts. The strength of the USD will greatly impact the CAD. If the USD continues to recover, the USD/CAD could reach between 1.36 and 1.37. The short-term outlook for USD/CAD is positive, with the USD likely to gain more.

    Monetary Policy Divergence

    There is a clear difference between the Bank of Canada’s and the Federal Reserve’s policies. Canada is expected to see a modest 0.7% increase in growth, which is not new information. However, Canada’s latest Consumer Price Index (CPI) from December 2025 showed a manageable 2.1%, indicating a softer approach from the central bank. On the other hand, the United States just released an unexpectedly strong jobs report for December, adding 210,000 jobs. This keeps the Federal Reserve from hinting at rate cuts anytime soon. This is a significant change from late 2025 when the market expected a more accommodating Fed. The US Dollar Index (DXY) has responded by climbing back towards 104 this month. For traders, this suggests a bullish outlook on USD/CAD in the short term. If the strength of the US dollar continues, we anticipate that the pair will test 1.3600 and possibly 1.3700 in the upcoming weeks. Options traders might think about buying calls on USD/CAD with March expirations to take advantage of this expected rise.

    Risk Considerations

    We should remember the USD rally that lost steam in the third quarter of 2025, making risk management important. However, the current trend favors the US dollar. Any Canadian economic data released soon will likely be overshadowed by the stronger U.S. economy. Create your live VT Markets account and start trading now.

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