Outlook
The CAD faces a tug-of-war between oil support and trade/tariff headwinds. Oil prices remain firm near 70.26 USD, which typically supports the loonie, but escalating US-Canada tensions and tariff measures cap upside potential. The Bank of Canada has kept policy tight at 2.75% with inflation expected around 2% in the medium term. February data releases on employment and inflation will likely inject near-term volatility into CAD moves. A sustained move above 0.74 per USD would require clearer resolution of trade frictions and firmer oil, while a renewed risk-off tone or oil softness could push the CAD back toward the 0.72 area.
Key drivers
- Monetary policy divergence: BoC’s cautious stance, with rates held at 2.75% and inflation trending toward 2%, contrasts with evolving expectations for US policy and growth.
- Trade relations and tariffs: US tariffs on Canadian goods and retaliatory measures from Canada add downside risk to CAD sentiment.
- Commodity prices: CAD remains highly sensitive to oil; sustained oil strength supports the loonie, while oil declines tend to weigh on it.
- Upcoming economic indicators: February 2026 data releases (employment, inflation, and central-bank communications) could amplify short-term CAD volatility.
Range
CAD/USD 0.7365; 3-month average 0.724; 3-month range 0.7087-0.7413; 1.7% above its 3-month average.
CAD/EUR 0.6202; just above its 3-month average; 3-month range 0.6120-0.6217.
CAD/GBP 0.5406; just above its 3-month average; 3-month range 0.5322-0.5451.
CAD/JPY 112.8; 14-day lows near, just below its 3-month average; 3-month range 110.1-115.3.
Oil (USD) 70.26; 3-month average 63.72; 3-month range 59.04-70.26; 10.3% above its 3-month average; 19.0% range.
What could change it
- Oil price shifts: A sustained move beyond current highs or a sharp pullback would directly influence the CAD trajectory.
- BoC policy surprises: An earlier or more aggressive stance on rates or inflation could tilt CAD risk/reward.
- Trade policy developments: Resolution or escalation of US-Canada tariffs would alter the currency’s fundamental bias.
- Domestic data surprises: Stronger-than-expected employment or inflation data versus expectations could reinforce CAD strength; softer data could weigh on it.
- Global risk sentiment and US dollar moves: A pickup in risk appetite or a stronger USD could shift CAD more quickly during North American trading hours.
