The Canadian Dollar was mostly flat against the US Dollar on Thursday, with USD/CAD near 1.3571. The US Dollar was softer overall, which limited gains in the pair.
US data showed Initial Jobless Claims fell to 227K from 232K, but still came in above the 222K forecast. Continuing Jobless Claims rose to 1.862M from 1.841M.
US Dollar Weakness Limits Upside
The US Dollar Index (DXY) traded near 96.85, close to a two-week low. The US Dollar struggled to keep earlier gains, even after a stronger Nonfarm Payrolls report, because revisions weakened the overall picture.
The US added 130K jobs in January versus expectations of 70K. However, November and December payrolls were revised lower by a combined 17K.
The BLS said average monthly job growth in 2025 was 15K. It also revised March 2025 total nonfarm employment down by 898,000, and cut total 2025 job growth to 181,000 from 584,000.
Markets are waiting for the US CPI report on Friday. Trade headlines also pressured CAD after reports that Donald Trump may consider leaving the USMCA. Meanwhile, the House voted 219-211 to move forward on a measure aimed at ending tariffs on Canada.
US CPI And Trade Risks Guide The Range
With mixed signals, we expect USD/CAD to stay range-bound as fundamentals and politics pull in different directions. The large downward revisions to 2025 US job growth—cutting the annual total to just 181,000—are still weighing on the US Dollar. This weakness in the Greenback is acting as a ceiling for the pair.
The US CPI report released this morning supported the disinflation trend. January CPI came in at 2.8% year-over-year, slightly below the 2.9% consensus. After this release, the CME FedWatch Tool shows markets pricing a 75% chance of a Fed rate cut by the June meeting. This supports our view that the US Dollar may stay softer over the medium term.
At the same time, the risk of a US exit from the USMCA is putting a floor under USD/CAD, making it harder for the Canadian Dollar to strengthen much. This week, Canada’s Minister of International Trade warned of “significant economic disruption” if the agreement changes, which has kept CAD-focused investors on edge. Because of this uncertainty, shorting USD/CAD outright remains risky for now.
For derivatives traders, this kind of uncertainty favors volatility strategies over directional bets. One-month USD/CAD implied volatility has risen to 8.5%, up from 6.2% last month. This suggests the market is preparing for a sharp move. Buying straddles or strangles may be a practical way to trade a breakout in either direction, potentially triggered by the next trade headline or a Fed comment.
As another approach, to express the idea of US economic weakness without Canada-specific political risk, we are also watching other pairs. For example, call options on EUR/USD may offer a cleaner way to position for broad US Dollar softness. The euro does not face the same direct US trade threats, so it may rise more freely against the Greenback if US data continues to weaken.
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