USD/CAD edged lower to around 1.3670 in early European trading on Thursday. This kept the Canadian Dollar supported, with the pair holding above 1.3650. The move followed a softer US Dollar, as markets weighed uncertainty around US economic policy and possible tariff hikes. US Trade Representative Jamieson Greer said on Wednesday that President Donald Trump plans to raise tariff rates to 15% or higher for many countries in the coming days. This authority lasts for 150 days unless Congress extends it.

Key Market Drivers

Oil prices can influence the Canadian Dollar because Canada is a major oil exporter, and higher crude prices often support CAD. Markets are also watching US-Iran nuclear talks. Officials are due to meet in Geneva on Thursday for a third round of indirect discussions. Canada’s GDP and the US Producer Price Index (PPI) are due on Friday. For US PPI, forecasts are 0.3% month-on-month in January versus 0.5% in December, and 2.6% year-on-year versus 3.0% previously. Key CAD drivers include Bank of Canada interest rates, oil prices, inflation, the trade balance, broader economic data, overall market risk appetite, and US economic conditions. The Bank of Canada’s inflation target aims to keep inflation within a 1–3% range. In early 2025, the US dollar weakened as markets worried about potential trade tariffs. This helped support the Canadian dollar and kept USD/CAD below 1.3700. As tariff concerns faded, attention shifted quickly to stubborn inflation data on both sides of the border.

Options Strategy Outlook

The hotter-than-expected US PPI data in January 2025 set the tone for much of that year. It pushed the Federal Reserve to delay planned rate cuts. Canada has faced its own inflation pressures. Statistics Canada data for January 2026 showed annual inflation holding at 2.8%. That persistence makes it harder for the Bank of Canada to move too far away from the Fed’s policy path. Geopolitical risks first highlighted in 2025 have continued to support crude oil, a key Canadian export. With WTI near $85 a barrel and tensions still elevated in the Middle East, the commodity-linked loonie has found a firmer base. This has also limited major upside in USD/CAD over the past year. With these forces pulling in both directions and both central banks staying cautious, implied volatility in USD/CAD options may be underpriced. Buying straddles or strangles could be effective in the coming weeks. These strategies can benefit from a large move in either direction, which could come from the next major inflation report or a sudden shift in oil prices. Alternatively, if you expect the Canadian dollar to stay firm, selling USD/CAD call options with strike prices above 1.3800 can generate premium. This approach reflects the view that high oil prices and a relatively hawkish Bank of Canada could limit the chances of a sustained upside breakout. It is a calculated bet on the range-bound trading seen recently. Create your live VT Markets account and start trading now.

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