USD/CAD is steady at 1.3790, even after recent losses, as oil prices start to rise. West Texas Intermediate Oil is trading close to $59.60 per barrel, which benefits the Canadian Dollar (CAD) since Canada exports a lot of oil to the US. Saudi Aramco is easing worries about oversupply by highlighting strong demand in emerging markets. Global oil consumption has hit record highs and is expected to keep growing until 2026, which is good news for the Canadian Dollar.

Geopolitical Issues Affect USD/CAD

The US Dollar is facing pressure from geopolitical uncertainties, which affect USD/CAD. Tensions have increased due to President Trump’s initial tariff threats against European countries that oppose his plans. However, these tensions have lessened after discussions about a potential deal with NATO. Economic uncertainty lingers due to unclear US-NATO agreements and Europe’s influence over US assets. On a positive note, US GDP increased to an annualized 4.4% in Q3 2025, exceeding expectations, while jobless claims reached 200,000, slightly above predictions. The Canadian Dollar is greatly influenced by oil prices and Canada’s economic health, which is affected by interest rates, inflation, and trade balance. A strong economy enhances CAD value by attracting foreign investment and prompting interest rate changes by the Bank of Canada. As of January 23, 2026, the USD/CAD pair is in a tug-of-war. The Canadian dollar is strengthening from rising oil prices, while the US dollar benefits from solid economic data. This situation suggests that trading strategies focusing on market ranges or volatility may be useful in the upcoming weeks.

Canadian Dollar and Economic Indicators

The biggest support for the Canadian dollar comes from the price of West Texas Intermediate crude, now around $59.60 per barrel. Historically, there’s a strong negative correlation between USD/CAD and oil prices, often around -0.7. This means that when oil prices go up, USD/CAD usually goes down. With Saudi Aramco predicting strong demand for 2026, rising oil prices could push USD/CAD below 1.3700. However, we should also recognize the remarkable strength of the US economy. The 4.4% GDP growth from Q3 2025 and the recent jobless claims of 200,000 indicate a strong economy, which may keep the Federal Reserve from lowering interest rates. This economic strength serves as a safety net for the US dollar and may limit declines in USD/CAD. Geopolitical uncertainties surrounding the US-NATO agreement on Greenland add further complexity, currently weighing on the US dollar. This situation creates short-term volatility, making straightforward bets risky. The market’s reaction to the Danish pension fund pulling out of US Treasuries illustrates how sensitive market sentiment is to these changes. Given the mixed signals, we think trading strategies that benefit from increased price swings are a smart choice. Buying options straddles on USD/CAD—purchasing both a call and a put option at the same strike price and expiration—could be a good way to capitalize on expected volatility. This strategy could be profitable if the pair moves significantly before the options expire. For those with a market direction in mind, it’s wise to be cautious. With oil prices on the rise, we might consider taking modest short positions on USD/CAD but also protect these positions by buying out-of-the-money call options. This would guard against sudden market reversals caused by positive US economic reports or a resolution to geopolitical tensions. Create your live VT Markets account and start trading now.

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