Canada’s CPI rose 2.3% year on year in January. That was down from 2.4% in December and below the 2.4% forecast. Prices were flat month on month. The Bank of Canada core CPI rose 2.6% year on year and 0.2% month on month. Other BoC measures were 2.7% for Common (from 2.8%), 2.4% for Trimmed (from 2.7%), and 2.5% for Median (from 2.6%). Statistics Canada said gasoline was the main reason the headline rate slowed. It also said the temporary GST/HST break in January 2025 continued to affect year-on-year comparisons in January 2026. Restaurant meals were hit most. Alcoholic drinks, toys, and children’s clothing were also affected. After the release, USD/CAD traded around 1.3650–1.3660. Earlier preview material pointed to a 13:30 GMT release time and a March 18 BoC meeting. Rates were expected to stay at 2.25%. The preview also listed technical levels: 1.3724, 1.3760, 1.3820, 1.3870, and 1.3928. Support was at 1.3481 and 1.3418. It also put RSI near 45 and ADX near 28. With inflation at 2.3% in January, a bit cooler than the 2.4% expected, near-term pressure on the Bank of Canada has eased. That gives the Bank more room going into the March 18 meeting and supports the view that it will hold rates at 2.25%. For traders, this lowers the risk of a hawkish surprise and leans toward a weaker Canadian Dollar. The data favors selling short-term CAD strength, or buying dips in USD/CAD. Headline inflation is lower, but core inflation is still sticky and well above the 2% target. That makes it hard for the Bank to hint at near-term rate cuts. This mix supports a slow move higher in USD/CAD rather than a fast breakout. It can also support strategies like selling out-of-the-money CAD call options. Recent data shows a clearer gap between the Canadian and U.S. economies. Last week’s U.S. jobs report stayed strong, with more than 200,000 jobs added. Canada’s early-February jobs data showed unemployment edging up to 6.2%. This policy gap matters: the U.S. Federal Reserve looks set to stay on hold, while the Bank of Canada could tilt more dovish. That can support USD/CAD in the weeks ahead. In the past—especially during the 2022 commodity surge—oil spikes gave the CAD a big lift. But Western Canadian Select is now steady around $65–$70 per barrel, so that tailwind is missing. Without strong support from oil, the CAD is more sensitive to rate differentials, which currently favor the U.S. Dollar. With USD/CAD still biased higher, traders may want strategies that benefit from a controlled rise. One approach is buying USD/CAD call spreads, for example targeting the 1.3724 February high. This keeps risk defined while positioning for further upside. It also fits a market that is continuing to price out the chance of a BoC rate hike, while still allowing for sudden pullbacks. The mix of cooler headline inflation and firm core inflation will likely keep volatility elevated around key data. That also raises the chance that options implied volatility is too low ahead of the next BoC meeting. If traders think the market is underpricing the risk of a bigger move, they could consider buying straddles or strangles, even without a strong view on direction.

here to set up a live account on VT Markets now