Outlook
The CAD is likely to remain range-bound near current levels in the near term, with moves driven mainly by oil prices and domestic data. An oil price softening would weigh on the loonie, while a rebound in oil or stronger Canadian data could lend modest upside. The Bank of Canada’s policy stance remains accommodative but not a source of rapid CAD shifts unless inflation or growth surprises emerge.
Key drivers
- BoC policy: The BoC cut the overnight rate to 2.25% and characterised that level as balancing growth with inflation targets; markets expect policy to stay around that level unless inflation or growth surprises occur.
- Oil price: Canada’s economy is oil-linked, so oil moves matter. Oil at 65.27 USD, about 3.6% above its 3-month average, supports the CAD but the broader price swings keep the loonie vulnerable to oil-driven swings.
- Trade policy risk: U.S. tariffs on Canadian steel, aluminum, and autos have contributed to a notable drop in Canadian exports to the U.S., weighing on CAD sentiment.
- Domestic data: Key January 2026 releases on trade balance and employment could inject fresh direction into CAD moves.
- Cross-rate context: Current levels show CAD/USD at 0.7224 (near its 3-month average; range 0.7084–0.7319), CAD/EUR at 0.6187 (near its 3-month range 0.6128–0.6217), CAD/GBP around 0.5385 (within 0.5352–0.5451 range), and CAD/JPY at 114.5 (about 2.1% above the 3-month average of 112.1; trading in a 108.4–114.6 range). Oil’s range (59.04–66.18) and its current 65.27 level contribute to overall CAD sensitivity.
- Global risk sentiment and U.S. dynamics: The CAD track record ties closely to U.S. economic health and global risk appetite, given trade and energy linkages.
Range
CAD/USD 0.7224; 3-month range 0.7084 to 0.7319 (about 3.3% span). CAD/EUR 0.6187; 3-month range 0.6128 to 0.6217 (about 1.5% span). CAD/GBP 0.5385; 3-month range 0.5352 to 0.5451 (about 1.8% span). CAD/JPY 114.5; 3-month average 112.1; 7-day high near 114.5; range 108.4 to 114.6 (about 5.7% span). Oil price 65.27 USD; 3-month average 63.02; range 59.04 to 66.18 (about 12.1% span).
What could change it
- Oil price direction: A sustained oil rally above current levels could provide CAD support; a sustained retreat toward the low 60s or below could pressure the loonie.
- BoC policy surprises: Any unexpected shift in inflation dynamics or growth that prompts a change in rate expectations could move CAD decisively.
- US-Canada trade developments: Resolution or escalation of tariffs and trade frictions would directly affect CAD sentiment and export prospects.
- Canadian data surprises: Stronger-than-expected trade balance or employment data could lift CAD; weaker data could weigh on it.
- U.S. policy and risk appetite: A firmer U.S. dollar or higher U.S. yields, or a shift in global risk sentiment, would influence CAD via risk and capital-flow channels.
