USD/CAD Hits Lowest Level in Over a Year on CAD Strength

Written by Sandra Leggero

Sandra Leggero has a background in financial markets, having spent more than 9 years in commodities trading for several European and Asian companies. She holds a degree in Economics from the University of Pavia and specializes in emerging markets.

, | Updated: January 29, 2026

Key Moments

USD/CAD trades near 1.3500, down about 0.40%, marking its weakest level since October 2024.
West Texas Intermediate (WTI) crude climbs to $65.90 per barrel, its highest level since September 26, rising more than 4% on the day.
Interest-rate swaps indicate roughly a 44% chance the BoC raises its policy rate to 2.50% within the next twelve months. Markets anticipate two Fed cuts later this year.

Loonie Extends Rally as Oil Advances

The Canadian Dollar (CAD) continues to strengthen against the US Dollar (USD) on Thursday. USD/CAD dropped to its lowest level since October 2024, trading near 1.3500, down nearly 0.40%. Higher oil prices and a steady Bank of Canada (BoC) policy outlook are supporting the Loonie.

Canada is one of the world’s largest oil exporters. Rising crude prices typically benefit the CAD. Oil markets rose after Washington warned of possible military action against Iran over its nuclear program. This triggered concerns about Middle East supply disruptions. West Texas Intermediate (WTI) is trading around $65.90 per barrel, its strongest since September 26, up more than 4% on the day.

Dollar Index Slips Despite Greenback Resilience

USD/CAD remains under pressure even as the broader US Dollar shows some resilience. The US Dollar Index (DXY), which tracks the Greenback against six major currencies, is near 98.17, down roughly 0.17%. The index recovered slightly after briefly touching a four-year low in the previous session.

Mixed US Data: Labor Market and Productivity

US economic data earlier in the day painted a mixed picture. Initial Jobless Claims fell to 209K from 210K last week but missed market expectations of 205K.

Nonfarm Productivity rose at an annualized rate of 4.9% in Q3, matching consensus forecasts and the previous estimate. Unit Labor Costs declined by 1.9% in Q3, also in line with expectations and unchanged from the earlier reading.

Indicator	Latest Reading	Previous	Market Expectation
Initial Jobless Claims	209K	210K	205K
Nonfarm Productivity (Q3, annualized)	4.9%	4.9%	4.9%
Unit Labor Costs (Q3)	-1.9%	-1.9%	-1.9%

BoC and Fed Decisions Shape Policy Divergence

Investors are evaluating policy announcements from the Bank of Canada and the Federal Reserve (Fed) delivered on Wednesday. The BoC kept its benchmark rate at 2.25%, in line with expectations. It reaffirmed its goal of maintaining inflation near 2%. The central bank said the current rate “remains appropriate.”

The Fed also held rates steady, reiterating a cautious, data-dependent stance. Officials noted that economic activity continues to grow at a solid pace. They added that inflation remains “somewhat elevated” and uncertainty about the outlook is still substantial.

Rate Expectations Favor Canadian Dollar

Future rate expectations are likely to support the CAD. Interest-rate swaps suggest a 44% chance of a 25-basis-point BoC hike to 2.50% over the next year. In contrast, markets expect the Fed to cut rates twice later this year. This policy gap reinforces the CAD’s strength against the USD.

Canadian Dollar: Key Drivers

Several factors influence the CAD’s path, including:

Bank of Canada interest rates.
Oil prices, as petroleum is Canada’s largest export.
Domestic economic health, including growth and inflation.
Trade Balance, or the gap between exports and imports.
Market sentiment: risk-on supports CAD, risk-off weighs on it.
US economic performance, since Canada’s largest trading partner.

Monetary Policy and Oil as CAD Catalysts

The BoC influences the CAD by setting the interest rate at which banks lend to each other. This shapes borrowing costs across the economy. Its main goal is to keep inflation within 1-3%. Higher relative rates usually strengthen the CAD. Quantitative easing tends to weaken the currency, while tightening generally supports it.

Oil prices also drive CAD demand. Because petroleum is Canada’s largest export, rising prices usually bolster the currency by improving the Trade Balance. Falling prices tend to weaken it.

Inflation, Data, and CAD Performance

Higher inflation can lead central banks to raise rates. This can attract foreign capital seeking higher returns, supporting the CAD. Macroeconomic indicators, including GDP, PMIs, labor data, and consumer sentiment, also affect the currency. Strong data can boost the CAD, as it may encourage the BoC to tighten policy. Weak data can weigh on the CAD, hinting at slower growth and a more cautious central bank.