HSBC Global Research says USD/CAD mostly tracks the broader US Dollar trend. The pair is trading a little below what interest rate differentials would suggest, which points to strength in the Canadian Dollar.
Higher oil prices, driven by tensions in the Middle East, are also supporting the Canadian Dollar. Oil is a major Canadian export and often influences the currency.
Tariff Uncertainty And Business Confidence
HSBC says tariff uncertainty can hurt business confidence. The report adds that this uncertainty has improved recently.
HSBC also expects the US to take a less aggressive trade stance ahead of the US mid-term elections. Because of this, it sees a sharp jump in USD/CAD as unlikely.
The article notes it was created with help from an AI tool and then reviewed by an editor. It also explains that the FXStreet Insights Team selects market observations from outside experts and analysts.
As of today, February 25, 2026, the Canadian dollar still looks resilient, much like it did in 2025. USD/CAD is trading near 1.3550, which still looks low if you focus only on historical interest rate spreads. This suggests the loonie’s underlying strength remains a key factor for traders.
Energy Prices And Policy Divergence
Support from high energy prices remains in place. WTI crude futures are holding above $85 a barrel, helped by continued geopolitical tensions and a tighter supply outlook than last year. This helps put a floor under the Canadian dollar and makes it harder to stay bearish on CAD.
On the policy side, the picture is clearer than last year. Canadian CPI is still firm at 2.9%, which makes the Bank of Canada less willing to cut rates. At the same time, markets are pricing a 75% chance of a Fed cut by June. If the rate gap narrows, it becomes harder for USD/CAD to rise for long.
The calmer trade tone expected ahead of the coming US mid-term elections has mostly played out. Compared with the concerns in 2025, tariff uncertainty has not worsened. This has supported steadier business investment flows between the two countries and removes a key trigger that could have pushed the pair sharply higher.
For derivatives traders, this setup suggests USD/CAD upside may be limited in the next few weeks. One possible approach is selling call options with strikes around 1.3700 to collect premium in a range-bound market. Another is using bearish call spreads, which can cap risk while still benefiting if the pair stays sideways or drifts lower.
Still, this view can change quickly. A sudden global risk-off shock could boost safe-haven demand for the US dollar. A drop in oil below $75 would also weaken a main support for the loonie. Any short-volatility or bearish positions should be paired with clear risk limits.
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