USD/CAD remained firm even after Canadian industry-level GDP rose by 0.1% month on month in January. The figure was above a market forecast of 0.0% and TD Securities’ forecast of -0.1%.
The data showed limited weakness outside pullbacks in manufacturing and wholesale trade. These declines had been indicated in earlier Statistics Canada monthly reports.
The January result, with no reversal in February, added upside risk to TD’s prior Q1 GDP forecast of +0.9% at a seasonally adjusted annual rate. Markets were still priced for nearly 50bps of rate tightening by December.
USD/CAD held steady as month-end and quarter-end US Dollar buying offset other forces. The move above mid-January highs kept upward momentum in place, with 1.40 identified as the next resistance area.
The Bank of Canada had been using a 1.8% Q1 GDP projection, so the January surprise aligned more closely with that estimate. TD cited labour market headwinds and softer core inflation momentum, and kept its timing for the next rate hike at 2027 Q1.
The US dollar is holding up well against the Canadian dollar, even with stronger Canadian economic reports. We are seeing significant US dollar demand at the end of the month and quarter, which is pushing the pair higher. The next important level to watch is the 1.4000 mark.
In the coming weeks, we should look at strategies that profit from this upward momentum toward the 1.40 target. Buying call options on USD/CAD with strike prices just below 1.40, expiring in late April or May 2026, could be an effective approach. This allows participation in the potential rally while clearly defining the risk involved.
Recent data reinforces this outlook, as the last US jobs report from early March showed a solid gain of 245,000 positions, suggesting the Federal Reserve will remain patient. Meanwhile, Canada’s most recent inflation report for February showed a slight cooling to 2.7%, which gives the Bank of Canada cover to stay on the sidelines. This policy difference between the two central banks is a major factor supporting a higher USD/CAD.
We also note that WTI crude oil prices have recently softened, dropping below $82 a barrel last week, which typically weighs on the commodity-linked Canadian currency. We remember seeing similar patterns in 2025 where, despite some positive Canadian data, the broader strength of the US dollar ultimately controlled the pair’s direction. This current environment is a reminder that the US dollar’s trend can easily overpower local factors.
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