Bias: Bearish-to-range-bound, USD/CAD sits below the 90-day average and in the lower half of its three-month range, suggesting limited upside unless new data shift the outlook.
Key drivers:
• Rate gap: The US Federal Reserve is expected to ease toward a neutral stance in 2026, while the Bank of Canada has signaled policy broadly balanced near target, narrowing the policy gap and keeping policy divergence in focus.
• Risk/commodities: Oil has risen to multi-day highs and sits above its longer-term average, supporting CAD when oil stays firm.
• Macro factor: January Canadian trade and employment data could swing the CAD depending on prints.
Range: USD/CAD is likely to drift within the three-month range, with a tendency to hold near the lower end unless oil or US data move the pair.
What could change it:
• Upside risk: stronger US payrolls and a firmer Fed outlook could keep the USD bid alive.
• Downside risk: oil price retreats or softer US data could lift CAD and push USD/CAD toward the range's middle.
