The Canadian Dollar (CAD) has gained strength against the US Dollar (USD) due to recent global events. President Trump threatened new tariffs on the EU, which lowered confidence in the market and caused the USD to drop. In just two days, the USD fell by 0.76%, making it its worst week since June of last year. Meanwhile, low Crude Oil prices have limited the CAD’s gains, even though geopolitical issues could increase the CAD’s value.

Inflation Data in Canada

Inflation data in Canada has affected expectations about interest rates set by the Bank of Canada, indirectly benefiting the CAD. The rise of the Canadian Dollar reflects a bounce from a 200-day EMA on the USD/CAD chart, suggesting more movement might happen if current trends continue. Several factors impact the CAD, including interest rates, Oil prices, economic health, and trade balances. Key economic indicators, such as GDP and employment rates, also impact the CAD’s performance. A strong economy tends to support the Canadian Dollar by attracting foreign investment. This information is for reference only and carries risks and uncertainties. Caution is advised when making investment choices, and thorough research is recommended. The article does not guarantee any outcomes and does not provide personalized investment advice.

A Familiar Pattern

On January 21, 2026, we are observing a pattern reminiscent of early 2025. Back then, geopolitical uncertainty weakened the US dollar, and now, renewed trade tensions with Mexico are creating a similar mood in US markets. This is putting pressure on the US dollar while boosting the CAD. The US Dollar Index (DXY) has fallen by 1.1% in the past week, marking its weakest performance since last October. This broad dollar weakness is the main reason the USD/CAD pair is declining. Investors are moving their money into safer assets like US Treasuries, which are lowering yields and making the dollar less appealing. In Canada, the economic fundamentals are favorable for the Loonie. The latest Consumer Price Index (CPI) data for December 2025 showed inflation at 3.2%, above the Bank of Canada’s target range. This suggests that the Bank will keep interest rates steady at its next meeting, avoiding a policy split that could weaken the CAD. Crude oil, an important Canadian export, is stable but not the main factor driving this trend. West Texas Intermediate (WTI) is trading around $74 a barrel, a level that supports the Canadian economy without causing a major rally on its own. The current strength of the CAD is mostly due to USD weakness rather than rising oil prices. Traders expecting further USD weakness can consider buying put options on the USD/CAD pair to speculate on a continued downturn while managing risk. If the USD/CAD drops below the key support level of 1.3250, it could push the move further down, making options expiring in late February or March appealing. This strategy allows traders to take advantage of downward momentum while limiting potential losses to the premium paid. However, since this market is influenced by headlines, sentiment can change rapidly. To manage this risk, traders might implement a bear put spread by buying a higher-strike put and selling a lower-strike put to finance the position. This method limits both potential profit and initial costs, making it suitable for a moderately bearish outlook. Create your live VT Markets account and start trading now.

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