USD/CAD held near the weekly high around 1.3700 in early European trading on Tuesday, helped by a stronger US Dollar. The US Dollar Index (DXY) climbed toward 97.80.
US President Donald Trump warned that tariffs could rise if countries do not follow through on recent trade deals. He also pointed to a Supreme Court ruling that blocked a tariff policy tied to an economic emergency law.
Fed Rate Hold Expectations
Traders still expect the Federal Reserve to leave rates unchanged at its March and April meetings. That view has supported demand for the US Dollar.
The Canadian Dollar was steady as oil prices rose on US-Iran tensions. Canada is the largest oil exporter to the US, and higher oil prices can increase foreign inflows.
Markets are also watching Canada’s Q4 Gross Domestic Product (GDP) data on Friday. The release could affect short-term pricing in USD/CAD.
USD/CAD was flat near 1.3700 and stayed above the 20-day Exponential Moving Average (EMA) at 1.3671. A break above the 27 January high of 1.3740 could extend the current move higher.
Technical Levels In Focus
The 14-day Relative Strength Index (RSI) remained in the 40.00 to 60.00 range. This suggests momentum is limited.
In early 2025, the focus was on a strong US Dollar and tariff threats. That mix pushed USD/CAD toward 1.3740. At the time, markets were confident the Fed would hold rates, which gave the greenback extra support. The story was mainly driven by expectations for US policy.
Today looks different. The pair is trading much lower, around 1.3550. The focus has shifted from broad US Dollar strength to a gap in policy expectations between the Fed and the Bank of Canada (BoC). The Fed has signaled a pause, while the BoC is still focused on domestic inflation.
Recent data supports this view. Canada’s annual inflation rate has held near 2.9%, which keeps pressure on the BoC to avoid rushing into rate cuts. Oil prices have also stayed firm, with WTI crude consistently above $75 a barrel. That helps support the Canadian Dollar. This is very different from last year’s backdrop.
For derivatives traders, this shift matters. The market has moved away from simple US-driven momentum and toward trading relative economic strength. With the FX Volatility Index near a calm 6.5, options are cheaper than they were during the more political 2025 period. This can make strategies such as buying USD/CAD put options, or using bearish put spreads, more appealing for traders looking for further downside—potentially targeting the 1.3400 level seen late last year.
Looking ahead, the key is to watch upcoming employment reports in both countries. If the US jobs market weakens while Canada remains resilient, the policy gap could widen further. In that case, options positioning can help traders express the view while limiting risk ahead of major data releases.
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