USD/CAD Market Update

USD/CAD Market Update – Monday, February 02, 2026

Current Level: Mid-1.36s (24hr range 1.3614–1.3675)

USD/CAD is trading near 1.3659 on Monday morning, extending its recovery from deeply oversold conditions as the U.S. dollar stabilizes following last week's sharp decline to four-year lows. The pair has bounced from the mid-1.35s as technical indicators suggest a relief rally may be underway, though the fundamental backdrop remains mixed. Markets are positioning ahead of Friday's employment reports from both Canada and the U.S., which will provide critical insight into labor market conditions and inform expectations for central bank policy paths through the first half of 2026.

Market Overview:

Risk appetite is mixed this morning, with equity markets recovering from steep overnight losses as cooler heads prevail following Friday's historic drawdown in precious metals. The U.S. dollar is stronger versus the G10 basket, extending its recovery following last week's nomination of Kevin Warsh as the next Federal Reserve Chair. Global bond yields are mixed with no major moves worth reporting. Precious metals continue to face pressure after Friday's dramatic selloff, with silver hanging on to the 50-day exponential moving average, a level that has held since the breakout began in June 2025. The combination of stabilizing dollar sentiment and technical support levels suggests markets are pausing to reassess after January's volatile price action.

Precious Metals Face Historic Correction After Parabolic Rally:

Precious metals are under continued pressure following Friday's historic drawdown, as investors take profit after the parabolic rally seen throughout 2025. Silver is currently holding the 50-day exponential moving average, a technical level that has provided support since the breakout began in June 2025. Silver bulls are defending this level, as a successful close below would open the door to the 100-day exponential moving average and the lower daily Bollinger band near $68 per ounce. The sharp reversal in precious metals followed the Warsh nomination, which provided a reality check to the currency debasement trade that had driven metals to extreme levels.

The correction raises questions about whether these represent buying opportunities or if the historic melt-up has ended. CIBC strategists note that the 8-day exponential moving average has not yet crossed below the 21-day exponential moving average, and the MACD has not flipped below the signal line, which would be needed for bearish confirmation. The extreme strength in precious metals throughout 2025 reflected deep market anxiety about currency debasement, geopolitical uncertainty, and concerns about fiscal sustainability in major economies. The recent pullback suggests some of those concerns have been tempered by the Warsh nomination, though underlying structural issues remain.

Warsh Nomination Provides Clarity on Fed Leadership:

President Trump announced his intention to nominate Kevin Warsh as the next Federal Reserve Chair, replacing Jerome Powell when his term ends in May. Warsh, who served as a Fed governor from 2006 to 2011, is widely viewed as a credible candidate who will maintain central bank independence. The nomination has been well received by markets, with observers noting that Warsh represents stability and credibility. Markets had been pricing elevated risks of Fed independence being compromised, driving extreme moves in precious metals as a hedge against currency debasement. The Warsh nomination reduces those concerns.

Warsh has a hawkish record, backing higher rates on the eve of the Lehman Brothers collapse and consistently arguing that the Fed's market interventions have gone too far. His nomination is expected to cruise past Senate confirmation without issue, providing clarity on Fed leadership after months of uncertainty. However, Senator Thom Tillis has vowed to block the process until the DOJ probe into the current Chair is resolved, citing the need to protect central bank independence. Warsh's mentor Stanley Druckenmiller noted his primary challenge will be expanding the economy amid an AI boom without reigniting inflation. His first stint at the Fed built a hawkish reputation and skepticism of expansive quantitative easing, cementing his inflation-first credentials.

Canadian Data/Outlook:

The main event of the week will be Friday's employment report for January, with CIBC strategists looking for an at-consensus print. The team notes that the jobless rate being closer to 7% than 6% is indicative of slack in the Canadian economy, which should keep inflationary pressures in check and justify a Bank of Canada hold. Overall, CIBC does not expect the data to change forecasts for the Bank of Canada or USD/CAD. The BoC has been clear that it expects below-trend growth to persist as excess demand unwinds, and the latest economic data fits neatly into that framework. With the advance estimate pointing to only a slight uptick in December and Q4 likely contracting marginally, the central bank's cautious stance looks justified, and the bar for near-term policy easing remains high despite market hopes for earlier cuts.

Fed Watch:

The key event of the week will be the nonfarm payroll report on Friday for January, with CIBC economists looking for another boring, in-line print. The team reminds that we will need to see poor readings from both January and February data for the Fed to cut rates in March. If not, then the first rate cut of the year will likely come around the middle of 2026. The Fed's decision to maintain the target range at 3.50% to 3.75% on January 28, along with Chair Jerome Powell's reminder that his term concludes in May, set the stage for a credible policy transition. The combination of a credible Fed successor, sticky inflation data, and a sharp position clean-up in precious metals was enough to lift the dollar from its lows. Markets appear to be penciling only modest easing later this year rather than a rapid cutting cycle, broadly consistent with recent Fed communication that any moves will be data-dependent and likely later in 2026 rather than immediate.

Technical Picture:

Resistance: 1.3680 (CIBC near-term target), 1.3777 (mid-point of daily Bollinger band), 1.3800 (medium-term level)
Support: 1.3614 (24hr low), 1.3540 (June-July triple bottom), 1.3494 (76.4% retracement level and key support)
Outlook: USD/CAD is trading in the mid-1.36s, as the pair extends its recovery after being significantly oversold. CIBC strategists are looking for a relief rally to the 1.3680 or higher area. Technically speaking, the mid-point of the daily Bollinger band near 1.3777 looks like an appropriate near-term target. Longer-term, views and forecasts remain unchanged. The pair had been trading below the 200-week exponential moving average for the first time since August 2022, suggesting bearish momentum had been intact. However, the current bounce from deeply oversold levels suggests a technical correction may be underway. For USD buyers, the current levels represent a potential entry point, though waiting for confirmation above 1.3680 would provide more confidence. For CAD buyers, rallies toward 1.3777 to 1.3800 would represent selling opportunities.

Week Ahead:

The week ahead will rigorously test the theme of policy divergence and the pulse of global growth. The ECB and Bank of England are expected to hold policy on Thursday, while the RBA is widely tipped to hike after upside surprises in Australian inflation, an asymmetry that keeps the AUD particularly sensitive. In the U.S., the data calendar is heavy with ISM Manufacturing on Monday and Services on Wednesday, followed by the mid-week ADP report and Friday's pivotal January employment data. Consensus expects 40k payroll gains with unemployment in the mid-4s, though wage revisions will be key for policy. Corporate results will add vital macro color on consumer demand and capex. For USD/CAD, the immediate question is whether the pair can sustain its recovery toward 1.3680 or if the recent decline signals a deeper correction is still underway.

Other Notes:

• Canadian Dollar Underperformance: After trading near 1.3480 on Thursday, USD/CAD pushed above 1.36 by week's end, leaving the Canadian dollar up only 0.8% for the month against the USD, once again underperforming its G10 peers for the month of January. The move came alongside a sharp underperformance in Canadian equities, where miners dragged the index lower as precious metal prices extended their selloff. Given that miners have been a major driver of Canadian earnings growth and a key beneficiary of earlier rallies in gold and silver, the market's sensitivity to commodity swings remains a structural headwind for Canadian stocks.
• Canadian GDP Weakness: Canada's November GDP print delivered a picture of an economy still struggling to regain momentum, with real output essentially flat after October's decline. The goods-producing sector remained the primary drag, with manufacturing contracting sharply again, weighed down by semiconductor-related auto production disruptions and weakness across machinery, metals, and food processing. Services provided only a modest offset, with gains in retail, education, and transportation helping stabilize the headline figure. With the advance estimate pointing to only a slight uptick in December and Q4 likely contracting marginally, the central bank's cautious stance looks justified.
• EUR/USD Momentum: The euro has maintained its strength after last week's sharp gains, with the pair gravitating toward its familiar 1.15 to 1.18 corridor. The bias remains for EUR/USD to slip back under 1.18 in the coming days or weeks. Given that much is expected from Germany, especially forward-looking indicators such as factory orders will be closely scrutinized for any early-year transition from recent upbeat sentiment to hard-line economic momentum.
• GBP/USD Volatility: Sterling's recent moves have been driven far more by the dollar than by anything happening domestically. Last week, GBP/USD broke above $1.38 to reach fresh four-year highs as broad USD weakness intensified. But that momentum quickly reversed with Friday's announcement of Kevin Warsh as the next Fed Chair, triggering the pound's largest daily drop since early November and pulling the pair back below $1.37. Even so, GBP/USD continues to trade above its key daily and weekly moving averages, suggesting underlying momentum remains constructive.
• Mexican Peso Pause: After USD/MXN had slid toward 17.1, a Friday swing pushed the pair back above 17.4 as the nomination of Kevin Warsh as the next Fed Chair firmed the dollar and lifted U.S. yields. Whether the trend resumes will depend on Mexico's domestic resilience against a narrowing yield differential. Mexico's Q4 GDP rose 1.6% year-on-year, enough to avoid a technical recession and edge past the central bank's modest projections.

Market Mood:

RSI Scale: <30 Oversold | 30-40 Risk-Off | 40-60 Neutral | 60-70 Risk-On | >70 Overbought

This commentary is provided for informational purposes only and should not be construed as investment, legal, or tax advice. Past performance is not indicative of future results. Please consult with qualified professionals before making any financial decisions. Richardson International Currency Exchange Inc. DBA Vantry Capital.