The Canadian Dollar is gaining strength thanks to rising oil prices amid geopolitical tensions. At the same time, the US Dollar remains stable due to strong economic indicators from the US. Key data on US Industrial Production for December and comments from US policymakers are expected soon. USD/CAD is trading around 1.3900, showing little change. The Canadian Dollar is supported by higher oil prices, while the US Dollar remains strong because of solid US economic performance. Increased geopolitical tensions, particularly concerning Ukraine’s attacks on Russian oil tankers, have raised worries about global oil supply and pushed prices higher.

US Dollar Strength

The US Dollar continues to perform well due to solid economic fundamentals. The US job market shows resilience, and past robust retail sales data indicate that the Federal Reserve might keep interest rates steady for a while. Several Federal Reserve leaders, like Chicago Fed President Austan Goolsbee and San Francisco Fed President Mary Daly, support a cautious approach to monetary policy. Recent US economic data supports this perspective. Weekly initial jobless claims fell to 198,000, and manufacturing indices are improving. The direction of USD/CAD will depend on how much support the Canadian Dollar gets from oil prices compared to ongoing US economic strength. The Canadian Dollar shows the most strength against the Australian Dollar compared to major currencies. As of January 16, 2026, USD/CAD shows a familiar pattern similar to early 2025. The pair is influenced by a strong Canadian Dollar due to oil and a resilient US Dollar. This balance suggests that the current stability around 1.3650 might not be lasting. Geopolitical issues in the Middle East have pushed WTI crude prices above $85 a barrel, a big increase since the fourth quarter of 2025. This gives strong support to the Canadian Dollar, echoing last year’s events in the Baltic Sea. As long as supply concerns remain, the Canadian Dollar will likely have a solid foundation.

Trading Outlook

Meanwhile, the US economy is still performing well, with the latest CPI report indicating inflation is steady at 3.4%. Weekly jobless claims are stable around 210,000, suggesting the Federal Reserve will hold off on rate cuts. This strong data keeps supporting the US Dollar. For traders, this situation creates potential for a significant breakout in either direction. It’s a good environment for volatility-based strategies rather than simple directional bets. We recommend using options, like straddles or strangles, to take advantage of potential significant moves, regardless of the direction. Attention now turns to the Bank of Canada’s interest rate decision on January 24th. Any hint that they are more worried about slowing economic growth compared to the Fed could lead to a big market reaction. Traders should prepare for increased price fluctuations around this announcement. The options market reflects this uncertainty, with one-month implied volatility for USD/CAD near 8.5%. This is higher than during periods of clear market direction, indicating that traders expect more movement in the coming weeks. Create your live VT Markets account and start trading now.

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