USD/CAD edged up to around 1.3580 in Asian trading on Thursday. The US Dollar strengthened against the Canadian Dollar after US jobs data beat expectations. Markets now turn to Friday’s US CPI inflation report. In January, the US economy added 130,000 jobs versus a 70,000 forecast. The unemployment rate dipped to 4.3% from 4.4%. These results lowered expectations for another Federal Reserve rate cut by mid-year, which supported the US Dollar.

Us Cpi In Focus

Friday’s CPI report is expected to show headline and core inflation at 2.5% year on year in January. Both are also forecast to rise 0.3% month on month. A softer print could pressure the US Dollar. Geopolitical risk could push oil prices higher. That often supports the Canadian Dollar because Canada is a major oil exporter. The Canadian Dollar is also sensitive to Bank of Canada policy, inflation, domestic growth data, and the trade balance. The Bank of Canada targets inflation within 1–3% and adjusts interest rates to manage prices. It can also use quantitative easing or tightening. Oil price changes can shift the trade balance, while data like GDP, PMIs, jobs, and sentiment can change expectations for growth and policy. With USD/CAD holding near 1.3580, the key near-term catalyst is tomorrow’s US CPI report. The strong January jobs report has already pushed markets toward a more hawkish Fed outlook. Still, October 2025 CPI surprised to the downside and triggered a sharp reversal. With consensus calling for 2.5% annual inflation, strategies that benefit from a large move either way—such as a long straddle—may be worth considering ahead of the release.

Policy Divergence And Positioning

Policy divergence between the US and Canada remains a central trading theme. The gap between US and Canadian 2-year yields has widened to more than 50 basis points. This favors the US Dollar as investors chase higher returns. Using futures to keep a core long USD/CAD position may make sense, since the Fed appears firmer than the Bank of Canada, which is still dealing with softer Canadian growth data from late 2025. Oil prices also need close monitoring because crude is a major driver of the Canadian Dollar. WTI has been trying to break above $85 per barrel on renewed Middle East supply concerns. That could limit further USD/CAD gains. Traders who are long USD/CAD may want to hedge by buying out-of-the-money put options, in case a sudden jump in oil strengthens the loonie. Volatility spikes in 2025 show how data surprises can drive large intraday swings. Implied volatility for USD/CAD weekly options has risen ahead of Friday’s CPI, suggesting the market expects a move. This can make selling far out-of-the-money options appealing for premium income, but it is best suited to traders with a high risk tolerance. Over the longer term, the stronger US economy relative to Canada points to a structurally higher USD/CAD. US GDP growth for Q4 2025 was a solid 2.9%, well above Canada’s 1.1%. Longer-dated call options can express this bullish view while limiting upfront capital. Create your live VT Markets account and start trading now.

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