USD/CAD dipped to around 1.3695 in early European trading on Friday. The Canadian Dollar strengthened as crude oil prices rose. Markets were waiting for Canada’s Retail Sales data, plus the US advance Q4 GDP report and the US PCE Price Index.
Geopolitical risks pushed oil higher and supported the oil-linked Canadian Dollar. US President Donald Trump said Iran had 10 to 15 days to reach a deal on its nuclear programme. He warned of “really bad things” if no deal is reached.
Oil Prices Support Canadian Dollar
US data also moved the pair. Strong US numbers can lift the US Dollar and reinforce a more hawkish Federal Reserve view. US Initial Jobless Claims fell to 206,000 for the week ending February 14. That was below the 225,000 forecast and down from the prior week’s revised 229,000.
Later on Friday, traders were set to watch the US PCE inflation data for December and a preliminary Q4 GDP reading. If these come in weaker than expected, the US Dollar could soften in the near term.
The Canadian Dollar is shaped by several factors, including Bank of Canada interest rates, oil prices, growth, inflation, and the trade balance. The BoC targets inflation between 1% and 3%. It can also use quantitative easing or tightening to influence credit conditions.
USD/CAD is showing weakness near 1.3700 as the Canadian Dollar gets support from higher oil prices. This sets up a clear tug-of-war: stronger commodities versus a still-firm US Dollar. Volatility may stay elevated as these forces compete in the weeks ahead.
The loonie is getting help from ongoing energy supply concerns. West Texas Intermediate crude is holding above $82 per barrel. As seen during periods of Persian Gulf tension in 2025, geopolitical risk can lift oil prices quickly. At the same time, OPEC+ production discipline is helping keep prices firm. Since Canada is a major oil exporter, higher oil prices are a fundamental boost for the Canadian Dollar.
Key Drivers To Watch Ahead
The US Dollar, however, continues to benefit from a solid US economy and a cautious Federal Reserve. Recent data has kept jobless claims near 210,000. The latest Core PCE inflation reading for January was 2.9%, slightly above expectations. While inflation is easing, it remains sticky enough for markets to dial back expectations of aggressive Fed rate cuts in 2026.
Next, traders will focus on Canada’s monthly GDP data and the next Bank of Canada policy meeting for local signals. In the US, the early-March Non-Farm Payrolls report will be a key release and could shift expectations for Fed policy. These events may become major drivers of the USD/CAD exchange rate.
This push and pull between a hawkish Fed and strong oil prices suggests USD/CAD could stay range-bound, but still swing sharply on surprise data. That backdrop can suit options strategies that target volatility or defined ranges ahead of major releases. Avoid chasing breakouts until one side of the story becomes clearly dominant.
Market moves in 2025 were a reminder of how fast sentiment can change. Surprise inflation data pushed the Fed toward a “higher for longer” message, and the US Dollar strengthened quickly. Traders who were not prepared for both sides of the USD/CAD narrative were punished. A similar setup may be forming now, which calls for flexibility.
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