USD/CAD stayed in a narrow range on Friday. The US Dollar held firm even though US inflation data came in softer. The pair traded near 1.3625, up slightly and rising for a third day in a row. New US data increased expectations that the Federal Reserve could cut rates later this year. CPI rose 0.2% month-on-month in January. That was down from 0.3% in December and below the 0.3% forecast. Headline CPI slowed to 2.4% year-on-year from 2.7%, missing the 2.5% forecast. Core CPI rose 0.3% month-on-month, matching expectations and up from 0.2%. Core CPI eased to 2.5% year-on-year from 2.6%. The Canadian Dollar weakened a bit after reports that President Donald Trump is privately considering pulling the US out of the USMCA. There has been no official confirmation. The US Supreme Court set 20 February as its first opinion day in a case tied to the legality of Trump-era tariffs. Lower oil prices also pressured the Canadian Dollar. Crude prices often affect Canada’s export income and demand for the loonie. WTI traded near $62.56 after hitting about $65.64 earlier in the week. Next week, attention turns to Canada’s CPI for clues about the Bank of Canada’s next move. Markets are weighing whether rates could rise later this year or remain on hold. As of today, February 13, 2026, the setup looks different from this time last year. In early 2025, markets expected Fed rate cuts because inflation was cooling. At the same time, the Canadian dollar was unusually weak due to USMCA trade risks. That mix kept USD/CAD stuck in a tight, uncertain range near 1.3625. Now the story has changed. The latest US Consumer Price Index for January 2026 was hotter than expected at 3.1% year-over-year. This has pushed the Federal Reserve to keep its policy rate at 4.25% and reject market hopes for a spring rate cut. That is a sharp contrast with January 2025, when inflation printed at 2.4% and supported easing expectations. Canada is seeing a similar, but milder, inflation backdrop. January CPI is 2.9%, and the Bank of Canada is holding its key rate at 4.00%. That leaves a 25-basis-point rate advantage for the US dollar. This gives USD/CAD a basic tailwind that was not there last year. Also, with WTI now stronger near $78 a barrel, weak oil is no longer a major drag on the loonie. As a result, the rate gap is the main driver. In this environment, traders may look for more USD/CAD upside in the weeks ahead. One defined-risk approach is to buy March USD/CAD call options with a strike near 1.3700. This targets gains if the pair moves higher because the US-Canada rate gap stays wide. It is a direct bet that the Fed remains more hawkish than the Bank of Canada through the first quarter. If you expect bigger swings around upcoming central bank messages, a long straddle may fit better. This means buying both a call and a put with a March expiry. It can benefit from a large move in either direction. This could be useful if next week’s Canadian retail sales data is a major surprise and forces the market to rethink its current view.

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