USD/CAD Market Update

USD/CAD Market Update – Thursday, February 05, 2026

Current Level: Mid-1.36s (24hr range 1.3653–1.3700)

USD/CAD is trading near 1.3682 on Thursday morning, holding relatively steady in the mid-1.36s as the pair consolidates following recent volatility in equity and commodity markets. The U.S. dollar remains mixed against the G10 basket as investors digest conflicting signals from services sector data and ongoing market rotation away from high-beta growth assets. Markets are positioning ahead of today's ECB and Bank of England policy decisions, both expected to hold rates unchanged, while Canadian services data showed deeper contraction in January.

Market Overview:

Risk appetite remains subdued this morning, with equity markets opening lower as the selloff in technology and software stocks continues. The U.S. dollar is mixed versus the G10 basket, showing limited directional conviction despite equity market jitters. Global bond yields are lower with no major moves worth reporting. Precious metals remain under pressure, with silver extending its decline after losing 13% yesterday and Bitcoin trading below $70,000 for the first time since late 2024. The entire crypto market cap has lost approximately $2 trillion in value since the liquidation event in October. FX markets have been surprisingly calm despite the turbulence in equities and digital assets.

U.S. Services Data Delivers Mixed Signals:

The January ISM Services index remained steady at 53.8, matching its highest level since October 2024 and staying safely in expansion territory. However, the details were less promising than the recent manufacturing report. Employment narrowly stayed in growth territory at 50.3, missing the expected 51.8, while new orders also cooled more than anticipated. The Prices Paid component nudged upward to 66.6, suggesting that inflationary pressures persist in the services sector. In January, the U.S. 10-Year Breakeven rate climbed from roughly 2.25% to 2.36%, reflecting reflationary concerns.

The internal industry dynamics tell a nuanced story. While 11 industries, led by healthcare, utilities, construction, and retail trade, reported growth, five sectors including transportation and warehousing saw contraction. Global demand showed signs of fatigue, with export bookings dropping at their fastest rate since March 2023. For equity investors, the software industry remains a particular sore spot despite the broader sector's expansion. ISM Chair Steve Miller noted that uncertainty continues to cloud the outlook, with respondent commentary highlighting concerns over tariff impacts and geopolitical tensions. While lower gasoline and diesel prices have provided some relief, the jump in the Supplier Deliveries and Business Activity indices suggests a busy landscape. The big question for markets now is whether recent price increases will stick or expand.

Equity Market Rotation Intensifies:

Markets are experiencing a major deleveraging and rotation in equities, with most higher beta growth assets including technology and Bitcoin under significant pressure. AI capital expenditure fatigue is starting to hit after Google and Microsoft announced record-breaking AI spending of over $150 billion. Investors are finally starting to ask questions on return on investment, with traders beginning to show skepticism about profitability.

The Federal Reserve is being tested as investors dump stocks to pressure Powell and future Chair Warsh into promising a dovish rescue that simply has not come yet. Historically, the Fed responds when the broader index is down 15% to 20% due to fears of a reverse wealth effect and contagion risks. For reference, the Nasdaq is down 6% from all-time highs. Software stocks face AI extinction risks and markets are growing increasingly concerned with leverage within the Private Equity space. Valuations are already at extremes, and everything is priced to perfection. A good flush should reset valuations and be healthy for the broader market.

Canadian Services Sector Deepens Contraction:

The Canadian service sector entered 2026 under growing pressure, with the S&P Global Canada Services PMI Business Activity Index slipping to 45.8 in January from 46.5 in December. This marks a third straight month of contraction, driven by a prolonged 14-month decline in new business. Weakness in services continued to weigh on the broader economy, pulling the S&P Global Canada Composite PMI down to 46.4 from 46.7. While manufacturing showed signs of stabilizing, it was not enough to offset the ongoing service sector slump, leaving overall private sector activity below the 50.0 breakeven mark for a third consecutive month.

Several headwinds are keeping activity subdued, including trade tariffs and elevated market uncertainty. In response to soft demand, service firms cut staffing for a fifth month, largely by not replacing departing workers. One modest positive emerged on the inflation front, with input cost pressures easing to a 16-month low. Even so, intense competition and weak demand have limited firms' ability to raise prices. While businesses remain cautiously optimistic about the year ahead, confidence levels remain well below historical averages.

Canadian Data/Outlook:

Canada has no major economic data releases today beyond the services PMI data discussed above. The main event for the Canadian dollar this week will be Friday's employment report for January. 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. 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 November GDP flat after a decline in October and Q4 likely contracting marginally, the central bank's cautious stance looks justified. RBC forecasts the BoC overnight rate to remain at 2.25% through all of 2026.

Fed Watch:

The Federal Reserve is expected to remain on hold at its next policy meeting on March 18, with markets pricing near-zero probability of a rate cut in the near term. The nomination of Kevin Warsh as the next Federal Reserve Chair has provided clarity on leadership succession, with his hawkish historical record suggesting policy will remain restrictive. Warsh backed higher rates on the eve of the Lehman Brothers collapse and consistently argued that the Fed's market interventions have gone too far, cementing his inflation-first credentials. His primary challenge will be expanding the economy amid an AI boom without reigniting inflation. RBC forecasts the Fed funds rate upper bound to remain at 3.75% through the end of 2026. The recent services data showing sticky inflation in the Prices Paid component supports the case for the Fed to remain patient on further easing.

Technical Picture:

Resistance: 1.3700 (24hr high), 1.3728 (61.8% Fibonacci retracement level), 1.3777 (mid-point of daily Bollinger band), 1.3800 (medium-term level)
Support: 1.3653 (24hr low), 1.3626 (must hold to maintain corrective scenario), 1.3578 (deeper support), 1.3494 (76.4% retracement level and key support)
Outlook: USD/CAD is trading in the mid-1.36s as the pair consolidates following recent volatility. CIBC strategists are watching the strong resistance at the low-1.37 area closely. They believe a strategy of buying in the 1.36 area and selling in the 1.38 to 1.39 area makes sense. USD/CAD still appears to be in a downtrend, with price struggling to break the 61.8% Fibonacci level of the trend channel. Key support sits at 1.3626, which must hold to maintain the corrective scenario. For USD buyers, current levels represent a potential entry point, though waiting for confirmation above 1.3700 would provide more confidence. For CAD buyers, rallies toward 1.3728 to 1.3800 would represent selling opportunities.

Week Ahead:

The week ahead features a busy Thursday with central bank decisions from the ECB and Bank of England, both expected to hold policy unchanged. The ECB meeting will be closely watched for any reference to euro strength, particularly after yesterday's eurozone HICP inflation decelerated to 1.7% from 2.0%, with the core component easing to 2.2% from 2.3%. The clear deflationary bias may recalibrate how much weight any discussion around the possibility of another cut prompted by a stronger euro carries at the meeting. For the Bank of England, a 7 to 2 vote to hold looks most plausible, and while there is a strong case for a cut by March or April, the MPC is unlikely to signal anything today. A hawkish hold could propel GBP/USD to fresh multi-year highs. Friday's Canadian employment report takes on added importance given the delay of U.S. jobs data, as it will provide the only fresh labor market insight from North America this week.

Other Notes:

• Eurozone Inflation Softens: Eurozone HICP inflation for January decelerated to 1.7% year-over-year from 2.0% in December, in line with expectations. More instructive was the downward surprise in the core component, which eased to 2.2% from 2.3% despite forecasts for an unchanged reading. The move was driven by a decline in services inflation, which slipped from 3.4% to 3.2%. The clear deflationary bias may impact how much weight the ECB gives to discussions around euro strength at today's meeting.
• Sterling Positioning: GBP/USD has rallied hard in 2026 despite narrowing UK-U.S. rate differentials. January's broad dollar selloff briefly pushed the pair above $1.38, levels last seen in 2021, before a modest USD rebound pulled it back into the $1.37s. If the BoE continues to resist early easing calls and keeps short-end gilt yields supported, the UK-U.S. front-end spread could widen again, giving sterling another leg higher. GBP/EUR is trading at its highest level in around five months, with both nominal and real rate differentials pointing to GBP/EUR being undervalued.
• Precious Metals Correction: Silver extended its decline, heading back toward Friday's crash levels after losing 13% yesterday. Bitcoin traded below $70,000 for the first time since late 2024. The entire crypto market cap has lost approximately $2 trillion in value since the liquidation event in October. The sharp reversal in precious metals and digital assets followed the Warsh nomination, which provided a reality check to the currency debasement trade that had driven these assets to extreme levels.
• U.S. Government Shutdown Ends: The U.S. House of Representatives narrowly voted 217 to 214 to end the partial government shutdown, restoring funding to affected agencies. The resolution removes uncertainty around the timing of key economic data releases, though the Bureau of Labor Statistics has confirmed that the January jobs report will still be delayed beyond its normal schedule.

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.