Outlook
The Canadian dollar faces mixed signals. Oil remains a key driver, with current prices near 70.92 USD per barrel and well above the 3-month average, supporting the loonie when oil holds firm. However, US policy divergence and tariff developments add downside risk for CAD versus the U.S. dollar. Expect a relatively range-bound path around the 0.73 area against the USD; a sustained oil rally or improved risk sentiment could push CAD modestly higher toward the mid-to-upper 0.73s, while renewed tariff tensions or a stronger US dollar could pressure it toward the low 0.71s.
Key drivers
- Oil price trends continue to influence the CAD, given Canada’s role as a major oil exporter. Oil at 70.92 USD, about 9.6% above the 3-month average, supports CAD when price momentum stays positive, though volatility can cap gains.
- Trade tensions: A new 10% global tariff framework, with exemptions for CUSMA-compliant Canadian and Mexican goods, adds uncertainty and could weigh on CAD if risk appetite dips or if trade frictions escalate.
- Monetary policy divergence: The Bank of Canada is holding rates at 2.25%, while the U.S. Federal Reserve is projected to ease toward 3.5–3.75% by year-end. This gap tends to pressure CAD versus USD as higher U.S. policy levels support the dollar more.
- Economic data: Canada’s December 2025 payrolls rose by around 45,000, underscoring labor-market resilience and supporting the CAD against softer external signals.
- Market mood and U.S.-Canada trade dynamics also feed into CAD moves, with oil-linked demand and risk sentiment regularly driving short-term swings.
Range
CAD/USD around 0.7314 in the 7-day period, about 0.6% above the 3-month average of 0.7271, with a very stable 4.0% range from 0.7127 to 0.7413.
CAD/EUR around 0.6189, near the 3-month average, after trading in a 1.6% range from 0.6120 to 0.6217.
CAD/GBP around 0.5393, near the 3-month average, trading in a 2.1% range from 0.5322 to 0.5434.
CAD/JPY around 114.2, 0.7% above the 3-month average of 113.4, within a 3.9% range from 111.0 to 115.3.
Brent Crude OIL/USD around 70.92, 9.6% above the 3-month average of 64.69, trading in a volatile 21.5% range from 59.04 to 71.76.
What could change it
- Oil price moves: A rise in oil supports CAD; a meaningful pullback or renewed volatility in oil can weigh on the loonie.
- Trade policy shifts: Escalation in tariffs or deterioration in U.S.-Canada trade relations could dampen CAD demand.
- Policy divergence: A sharper than expected hawkish shift in U.S. policy or a softer-than-expected BoC path could alter USD/CAD dynamics.
- Domestic data flow: Updated employment, GDP, or investment indicators could shift near-term odds of CAD strength or weakness.
- Global risk sentiment: Increased risk-off sentiment tends to pressure commodity-linked currencies, including the CAD.
