USD/CAD ticked higher on Wednesday, trading near 1.3612 after bouncing from intraday lows around 1.3500. The pair rose after reports said the US is privately considering leaving the US-Mexico-Canada Agreement (USMCA), which weighed on the Canadian Dollar.
US officials have not confirmed the reports. Trade uncertainty across North America also stayed high.
Usmca Uncertainty Lifts Volatility
US labor data helped the US Dollar recover after recent weakness. Nonfarm Payrolls increased by 130K in January, above expectations near 70K and December’s revised 48K. The Unemployment Rate eased to 4.3% from 4.4%.
The Bureau of Labor Statistics said average monthly job growth in 2025 was 15K. Average Hourly Earnings rose 0.4% month-on-month versus a 0.3% forecast, and annual earnings came in at 3.7% year-on-year versus 3.6%.
Markets still priced in about two US rate cuts by year-end. Focus now shifts to Friday’s US Consumer Price Index report.
Oil prices gave back part of earlier gains after Volodymyr Zelenskyy said Ukraine is ready to meet the US on 17–18 February. Lower crude prices can hurt the Canadian Dollar because Canada is a major oil exporter.
Options Positioning For Event Risk
Strong January jobs data, combined with ongoing USMCA uncertainty, points to higher volatility in USD/CAD. Buying options may help position for a larger-than-expected move in the coming weeks. With several near-term risk events, implied volatility may be priced too low.
The biggest risk for the Canadian dollar is the possibility of a US exit from the USMCA. With more than $900 billion a year in two-way trade at stake, any confirmation could push USD/CAD sharply higher. Buying out-of-the-money USD calls could be a lower-cost way to hedge, or potentially profit from, this tail risk.
Friday’s US CPI report is the next key catalyst and creates two-way risk for the US dollar. A hotter inflation reading could reduce expectations for Fed cuts and support the dollar. A softer report could do the opposite. This setup makes long straddles or strangles on USD/CAD attractive for capturing a large move in either direction after the release.
Even though the January jobs report was strong, it needs to be viewed against the weak hiring trend seen through 2025, when job growth averaged only 15,000 per month. This gap supports the Federal Reserve’s data-dependent approach, which can amplify market reactions to each new release. In early 2024, the VIX often stayed elevated even when data was positive, showing that underlying anxiety can persist and make options protection worthwhile.
Oil markets also need close monitoring. Crude is Canada’s largest export, worth more than $120 billion last year. Geopolitical events, including the upcoming Ukraine-related talks, can swing WTI prices and move the loonie regardless of economic data. If talks break down, oil could rise and support the CAD. If a deal looks likely, oil could fall and weigh on the currency.
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