USD/CAD Near 1.37 as Fed Cut Bets Clash With Oil Strength in Early 2026
USD/CAD began the year hovering around 1.3726 – 1.3735, stopped short of strong follow-through, and showed only a mild upswing.
Quick overview
- USD/CAD started the year around 1.3726 – 1.3735 but showed only a mild upswing amid a struggle between the US dollar and the Canadian dollar.
- Expectations of two Fed rate cuts later this year are weighing on the US dollar, compounded by speculation about a potential change in Fed leadership.
- Despite a 0.3% contraction in Canadian GDP, the Canadian dollar remains stable due to the Bank of Canada's patient approach and rising oil prices.
- Technically, USD/CAD is trading at 1.3735, with a focus on maintaining levels above 1.3705 to target higher resistance near 1.3800.
USD/CAD began the year hovering around 1.3726 – 1.3735, stopped short of strong follow-through, and showed only a mild upswing. On Friday it did manage a little push towards 1.3730 before the momentum just fizzled out, another sign of the ongoing tug-of-war between a struggling US dollar and a remarkably resilient Canadian dollar. As 2026 got underway, the market players looked very selective – they’re not taking a view, instead responding to policy news and totally ignoring breakouts.
The expectation that the Fed will deliver two rate cuts later on this year is still weighing heavily on the dollar. That has been reinforced by speculation that President Donald Trump may be looking to bring in a new Fed chairperson when Jerome Powell’s term runs out in May, raising serious questions about whether we will see a more easygoing policy stance from the US central bank.
Fed Signals Cap Dollar Strength
A look at the minutes from the Fed’s December meeting shows the committee was divided. Some folks were arguing for holding off on further rate cuts if inflation continues to slow, while others were pushing not to cut rates again after the three cuts in 2025 to protect the labour market. This lack of consensus has kept US interest rates in check and limited the upside for the US dollar.
Meanwhile, the Canadian dollar has been relatively stable. Even after the stats showed that Canadian GDP had shrunk by 0.3% in October, the market still felt pretty comfortable with the Bank of Canada’s steady tone. The BoC has been signaling that it’s patient – no need to rush into action – and that has helped the CAD hold its own despite the weaker growth data. The next bit of news to focus on is the S&P Global Canada Manufacturing PMI report, which will give us some idea of what’s happening in the domestic market.
Oil Prices Give CAD an Extra Lift
Higher oil prices are also helping the Canadian dollar out a bit – and that’s because Canada is the biggest crude oil exporter to the US, so when the energy market tightens, Canada tends to do a bit better too. Recent supply worries linked to Ukraine and broader global tensions have kept oil prices firm, in turn helping cap the upside for USD/CAD.
USD/CAD Technical Picture Points to a Gradual Recovery
From a technical standpoint, USD/CAD is currently trading at 1.3735 on the four-hour chart, bouncing back from the late December low of 1.3643. The price action is contained within a short-term rising channel, and an ascending trendline has been guiding higher lows.
Price has also reclaimed that 38.2% Fibonacci retracement at 1.3705 and is now testing the 50% level near 1.3724. As long as it holds above that zone, its focus will be on the 61.8% retracement at 1.3743, with a bit broader resistance area up near 1.3805.
The 50-period EMA is starting to flatten below price, and the RSI is up around 63, which suggests improving momentum – but not quite getting out of control.
Trade idea: a pullback to 1.3710 keeps the bias constructive, with scope to move up toward 1.3800 as long as price stays above 1.3680.
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