USD/CAD edged up to around 1.3615 in Asian trading on Friday as the US Dollar gained slightly against the Canadian Dollar. Later on Friday, attention shifts to the US Consumer Price Index (CPI) inflation report.
US Nonfarm Payrolls rose by 130,000 in January, beating the 70,000 forecast. The Unemployment Rate dipped to 4.3%, which supports the view that the Federal Reserve may keep interest rates unchanged in the near term.
Oil Prices And Canadian Dollar Pressure
Crude oil prices fell on expectations of weaker global oil demand in 2026. This weighed on the commodity-linked Canadian Dollar. Canada is a major oil exporter, and lower oil prices often pressure the currency.
Federal Reserve comments also moved the pair. Governor Stephan Miran said monetary policy has tightened passively. He also said the central bank can afford lower interest rates.
Markets are pricing in nearly a 92% chance the Fed will hold rates at its next meeting. The odds of a rate cut in June are close to 50%, according to the CME FedWatch tool.
The strong January US jobs report supports the case for USD/CAD to rise further toward 1.3700. This points to near-term call options as a possible strategy. However, the upcoming US CPI report is a major risk. If inflation is cooler than expected, the pair could quickly give back these gains.
Fed Signals And Volatility Strategies
The Canadian dollar is also weakening because crude oil prices are dropping, which hurts commodity-linked currencies. WTI crude has recently broken below the $70 per barrel support level, down sharply from its Q4 2025 highs near $85. This strengthens the case for a higher USD/CAD, since Canada’s economy is closely tied to energy exports.
Even with the US dollar firm, mixed Federal Reserve messaging is increasing uncertainty for the months ahead. This echoes the Fed’s pauses in the second half of 2025, when data signals were also uneven. With close to a 50% chance of a June rate cut, traders may look at volatility strategies such as straddles to benefit from potential larger moves.
All eyes are on US inflation data due later today. Headline CPI for December 2025 was 3.1%. A hotter-than-expected reading today could push USD/CAD above the key resistance levels seen late last year. A softer print, however, would support dovish Fed views and could send the pair sharply lower.
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