The Canadian Dollar (CAD) is falling against the US Dollar (USD), with the USD/CAD pair currently at 1.3676, up by 0.44%. Strong US economic data, especially an increase in the ISM Manufacturing PMI to 52.6, has strengthened the USD, while declining oil prices are dragging down the CAD. The US Employment Index has risen to 48.1, and the New Orders Index is up to 57.1, showing positive trends. The Prices Paid Index is also higher at 59.0, even though it’s below what many expected. Additionally, the S&P Global Manufacturing PMI climbed to 52.4. The US Dollar Index (DXY) is close to 97.62, supported by a hawkish stance from the Federal Reserve after Kevin Warsh’s nomination.

Canadian Economic Outlook

In Canada, the S&P Global Manufacturing PMI increased to 50.4, showing slight growth. However, the CAD faces pressure from falling oil prices, with West Texas Intermediate at about $61.78 per barrel. Attention is now on upcoming job market reports from both nations. The main factors affecting the CAD include interest rates set by the Bank of Canada, oil prices, Canada’s economic situation, and its trade balance. Economic reports and central bank decisions can greatly influence the CAD’s value. Higher inflation often leads to increased interest rates from the central bank, which can strengthen the currency. As of February 2, 2026, the US dollar is strong against the Canadian dollar, and we expect this trend to continue. Strong US manufacturing data, especially the rise in new orders, suggests a growing American economy. This stands in stark contrast to Canada’s slower recovery from a challenging 2025.

Factors Influencing Currency Trends

The US economy is excelling not just in manufacturing. Last week’s Conference Board Consumer Confidence Index rose to 114.8, the highest since late 2024. This reflects strong consumer demand, supporting the US dollar. On the other hand, Canada’s economy is weak. While there was a slight improvement in manufacturing, Canadian housing starts unexpectedly dropped by 8% in January, indicating that crucial sectors are still struggling. This economic divide is a big reason to favor the US dollar. The significant drop in oil prices is another factor hurting the Canadian dollar. With West Texas Intermediate falling below $62 a barrel, it has broken through key support levels from late 2025. As a major oil exporter, Canada will face challenges from ongoing low energy prices, which will negatively impact its trade terms and currency value. We are also seeing a growing gap in monetary policy. Kevin Warsh’s nomination to lead the Federal Reserve hints at a more hawkish, data-focused approach in the US. In contrast, weak economic data from Canada might keep the Bank of Canada cautious, creating a policy difference that favors the US dollar. In this environment, we should consider buying USD/CAD call options in the coming weeks. Aiming for strike prices above the 1.3700 level is a sensible first step, with the potential to target 1.3800. The employment reports from both countries this Friday will be a key factor, and a strong US non-farm payroll number could help push the pair beyond recent resistance levels. Create your live VT Markets account and start trading now.

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