Outlook
The CAD has been largely flat around 0.72 per USD as inflation ticked higher while oil prices eased. This keeps the loonie in a narrow range for now. If oil continues to soften, the CAD may face downside pressure despite the Bank of Canada’s stance, with the policy rate at 2.25% described as the right level to balance growth and inflation. Trade policy uncertainty, notably U.S. tariffs on Canadian steel, aluminum and autos, adds a persistent headwind. January 2026 data releases on trade balance and employment could provide fresh directional clues. Markets have priced the BoC policy as balanced after the cut, so near-term moves will hinge on oil trends, data surprises, and trade headlines.
Key drivers
- Oil prices: Oil trades around 64.31 USD and is roughly 2.1% above its 3-month average, but with a volatile 12.1% range between 59.04 and 66.18. As a major oil exporter, Canada’s currency tends to follow oil, keeping CAD vulnerable to swings.
- Bank of Canada policy: The BoC cut to 2.25% in late 2025 and described the level as about right to balance growth and inflation. The policy stance remains supportive but data-dependent; any shift in rate expectations could move CAD.
- Trade policy uncertainty: U.S. tariffs on Canadian steel, aluminum, and autos have led to a sizable drop in exports to the U.S. (about 15.8% in a single month) and weigh on CAD via risk and growth channels.
- Global risk sentiment and U.S. activity: CAD often moves with U.S. demand and broader risk appetite; a stronger U.S. economy typically supports CAD, while protectionist signals or risk-off moods can pressure it.
- Upcoming domestic data: January 2026 releases for trade balance and employment could surprise and drive CAD direction, depending on whether data show resilience or weakness.
- Structural factors: CAD remains a commodity-linked currency with a strong US trade linkage; shifts in oil demand, energy policy, and global growth will continue to matter.
Range
CAD/USD: 0.7084 - 0.7319 (current near 0.7229)
CAD/EUR: 0.6128 - 0.6217 (current near 0.6164)
CAD/GBP: 0.5349 - 0.5451 (current near 0.5379)
CAD/JPY: 108.4 - 114.6 (current near 114.3)
Oil (USD): 59.04 - 66.18 (current near 64.31)
What could change it
- Oil price moves: a sustained rally above the 66–66.5 area could lift CAD; a sustained selloff near or below 60 could push CAD lower.
- BoC policy outlook: any shift in rate expectations or inflation surprises that alter the path of the policy rate would steer CAD.
- Trade policy developments: resolution or escalation of U.S.-Canada trade tensions, including tariffs, would meaningfully impact CAD direction.
- U.S. dollar trend: a stronger USD generally weighs CAD; a weaker USD tends to lift CAD.
- Domestic data surprises: stronger-than-expected employment or trade data could support CAD; softer data could pressure it.
- Global risk sentiment: a durable risk-on environment tends to support commodity currencies like the CAD, while risk-off conditions can weigh.
