The USD/CAD pair fell to about 1.3890 early in Asia’s trading hours. This decline happened partly because the Canadian Dollar strengthened with the rise in crude oil prices. Increased tensions between Ukraine and Russia are driving up oil prices, benefiting the Canadian Dollar. A strong U.S. economy is indicated by solid retail sales and improvements in the job market, which supports the Federal Reserve’s decision to keep interest rates steady. Analysts predict that rate cuts may be delayed until later this year. This stability in rates supports the US Dollar. Officials from the Federal Reserve noted the importance of being cautious due to changing economic conditions.

Factors Influencing The Canadian Dollar

Several factors influence the Canadian Dollar, including the Bank of Canada’s interest rates, oil prices, and economic health. Higher oil prices and strong economic data tend to increase the CAD’s value. Actions by the central bank can significantly impact the currency, with higher rates being favorable. Economic indicators like GDP and job data can lead to rate changes, affecting the strength of the Canadian Dollar. A year ago, the USD/CAD traded near 1.3900 due to geopolitical tensions in the Baltic Sea, which boosted crude oil prices. Back in early 2025, strong US jobs and retail data led many to believe that the Federal Reserve would keep interest rates high for an extended period. This created a balance between a strong US Dollar and a Canadian Dollar supported by commodities. Today, January 16, 2026, the situation has changed, with USD/CAD now closer to 1.3450. The Federal Reserve did move towards rate cuts in the latter half of 2025 as inflation slowed, impacting the US Dollar negatively. This shift is a key reason for the pair’s decline over the past few months. Crude oil remains vital, providing support for the Canadian Dollar. West Texas Intermediate (WTI) is currently stable around $88 per barrel, helped by ongoing supply concerns and tensions in the Middle East. This trend matches last year’s, where supply risks directly supported the Canadian Dollar.

Recent Economic Data And Trading Opportunities

Recent U.S. economic data is shaping the scenario for the coming weeks. The December 2025 jobs report showed a surprising gain of 210,000 jobs, exceeding expectations and indicating a robust US economy. Additionally, inflation in the U.S. has remained stubborn, with the latest Consumer Price Index (CPI) at 3.0%, adding uncertainty to the Fed’s next move. On the Canadian side, the outlook is a bit different, potentially creating trading opportunities. Canada’s inflation rate has noticeably decreased, falling to 2.8% in the latest report. This situation may pressure the Bank of Canada to consider another rate cut sooner than the Fed, which could weaken the Canadian Dollar. Due to these mixed signals, we anticipate increased volatility in USD/CAD in the upcoming weeks. Traders might want to adopt strategies that benefit from price fluctuations, such as buying straddles or strangles, allowing them to profit from significant moves in either direction without needing to predict a specific outcome. For those with a directional view, the surprisingly strong U.S. data suggests a possible short-term rise in USD/CAD. A smart trade could involve buying near-term call options to take advantage of a potential rise toward the 1.3550-1.3600 range. However, any long positions should be hedged because the high price of crude oil may limit substantial rallies. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now