Rabobank expects USD/CAD to trade sideways through 2026. It says US–Canada trade tensions and risks around the USMCA review will offset a weaker US Dollar. In its view, the pair should stay in a 1.36–1.41 range, with a “tariff premium” weighing on the Canadian Dollar.
Rabobank also expects a narrower US–Canada rate differential to limit US Dollar strength. That should keep USD/CAD range-bound. It gives another range of 1.37–1.40, based on the same offsetting forces.
USD/CAD is described as tracking the US–Canada 2-year rate differential again, and moving inversely to oil. Oil is seen as a key CAD driver mainly when prices move sharply and quickly.
Implied volatility is expected to rise, rather than quickly return to the low-volatility conditions of December 2025. The official USMCA review date is July 1, described as four and a half months away. Uncertainty around US–Canada relations is linked to further volatility.
In the coming weeks, USD/CAD is expected to stay in a tug-of-war, keeping it within a 1.36 to 1.41 range. The risk of trade tariffs is capping the Canadian dollar, but a weaker US dollar is balancing that out. This makes a big breakout in either direction a risky bet for now.
This view is supported by the narrowing interest rate spread between the US and Canada. As of early February 2026, it has tightened to about 20 basis points, down from more than 50 basis points in late 2025. That makes holding US dollars less attractive. However, January’s cross-border trade data showed a 1.2% decline—the first monthly drop in six months—showing rising market anxiety about trade relations.
With more bumps expected (instead of the calm of December 2025), buying volatility may make sense. Implied volatility on 3-month options has already risen to 7.9% from lows of 6.5%, and Rabobank expects it to keep climbing. Strategies like long strangles, which benefit from a large move in either direction, could work well in that environment.
The main upcoming event is the USMCA review on July 1, now just over four months away. In the weeks ahead, traders may want to focus on options that expire after this date to capture potential swings. These longer-dated options will likely get more expensive as the review gets closer.
For those looking to trade the range, selling options near the edges of the 1.36–1.41 band could generate income. That could mean writing out-of-the-money call options with strikes above 1.41. It could also mean selling puts below the 1.36 support level to collect premium, betting that the floor holds.
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