USD/CAD is trading at about 1.3900, reflecting a 0.10% rise. This increase is mainly due to a strong US Dollar (USD), backed by solid US economic data, and a weaker Canadian Dollar (CAD), which is suffering from falling oil prices. Recent US labor data shows that Initial Jobless Claims dropped to 198,000 from 207,000. Continuing Jobless Claims fell to 1.884 million, highlighting the resilience of the US economy. The US Dollar Index (DXY) remains high, signaling the strength of the US economy, even as regional manufacturing surveys indicate only a slight slowdown.

Pressure on the Canadian Dollar

The Canadian Dollar is under pressure from a decline in oil prices, a crucial export for Canada. This decline is due to easing geopolitical tensions and expectations of increased supply. The Bank of Canada’s (BoC) monetary policy remains cautious, with moderate growth and stable inflation providing little support for the currency. Together, the strong US Dollar and the weaker Canadian Dollar keep USD/CAD around 1.3900. This trend is likely to persist as long as these conditions continue. The Canadian Dollar has shown mixed results against other major currencies, showing some strength against the British Pound. The gap between the robust US economy and Canada’s challenges favors a higher USD/CAD, pushing it closer to 1.3900. This was confirmed by US job data from January 11, 2026, which showed jobless claims at a low 203,000. This indicates a tight labor market, leaving the Federal Reserve with little reason to cut interest rates soon. Federal Reserve policy is a key factor, and the latest December 2025 inflation report revealed that core CPI remains at 3.2% year-over-year. This persistent inflation, along with a strong labor market, undermines expectations for rate cuts that traders priced in late last year. Therefore, traders may want to use options to hedge against the Fed maintaining rates through the first quarter.

Struggling Canadian Dollar

The CAD faces challenges from falling oil prices, with WTI crude futures dipping below $73 a barrel this month due to increased global supply forecasts. Additionally, Canada’s inflation for December 2025 came in lower at 2.7%, raising the chances that the Bank of Canada may cut rates before the Fed. This situation supports the idea of selling CAD against the USD. Considering these factors, a bullish view on USD/CAD seems reasonable for the upcoming weeks leading into the late January central bank meetings. Traders might consider buying call options on USD/CAD with strike prices targeting the psychological level of 1.4000, expecting continued upward movement. This strategy allows for potential gains while managing risk in case the market situation changes unexpectedly. Create your live VT Markets account and start trading now.

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