Outlook
CAD is likely to remain range-bound near the 0.73 level versus the USD in the near term, as domestic inflation softens pressure while oil prices swing. The Bank of Canada’s policy stance remains at 2.25% after the October 2025 cut, described as “about the right level” to balance growth and inflation. An uptick in inflation this week helped offset a drop in oil, keeping CAD moves modest. However, a continuing slide in oil could weigh on the loonie, given Canada’s role as a major oil exporter. U.S. trade policy uncertainty and global commodity-price volatility add to the backdrop, with January 2026 data on trade and employment likely to provide fresh direction.
Key drivers
- BoC policy stance and inflation trajectory (policy at 2.25%; guidance suggests a balanced stance, but shifts in inflation or employment could alter rate expectations).
- Oil price movements (Canadian economy is commodity-linked; softer oil has historically pressured the CAD, while oil strength can support it).
- U.S. trade policy and export demand (tariffs on Canadian steel, aluminum, and autos; export sensitivity to U.S. demand).
- Domestic data releases (January 2026 trade balance and employment figures; surprises can move the CAD).
- Global risk sentiment and the U.S.-Canada economic link (North American trade and energy links tend to amplify CAD moves during market stress or risk-on/off periods).
Range
CAD/USD: 0.7301 (14-day high; 3-month avg 0.72); range 0.7084–0.7319.
CAD/EUR: 0.6159 (just below 3-month avg); range 0.6128–0.6217.
CAD/GBP: 0.5345 (1.1% below 3-month avg 0.5402); range 0.5339–0.5451.
CAD/JPY: 113.2 (0.8% above 3-month avg 112.3); range 108.4–114.9.
Oil (Brent Crude OIL/USD): 65.04 (3.2% above 3-month avg 63); range 59.04–66.18.
What could change it
- A BoC policy surprise or revised inflation outlook that meaningfully shifts rate expectations.
- A decisive move in oil prices outside the current range (either a sustained rally or slide).
- Resolution or escalation of U.S.–Canada trade tensions affecting export demand.
- A surprise in Canadian data (trade balance, employment) that alters near-term CAD direction.
- A shift in global risk sentiment or U.S. monetary policy that changes appetite for carry trades and commodity-linked currencies.
