USD/CAD Market Update

USD/CAD Tumbles to 1.3578 – Monday, February 09, 2026

Current Level: High-1.35s (24hr range 1.3574–1.3668)

USD/CAD is trading near 1.3578 on Monday morning, falling to multi-week lows as the U.S. dollar weakens across the G10 basket. The pair is once again testing the 200-week moving average, a critical support level that has held on a weekly closing basis despite being breached temporarily two weeks ago. Markets are positioning ahead of a heavy U.S. data week that includes nonfarm payrolls on Wednesday and CPI on Friday, both of which will provide crucial insight into the Federal Reserve's policy trajectory.

Market Overview:

Risk appetite is mixed this morning, with equity markets opening largely unchanged as traders digest Japan's election results while preparing for the week ahead. The U.S. dollar is lower versus the G10 basket, as markets digest comments from White House economic advisor Kevin Hassett that warned of a soft payroll number this week. Global bond yields are mixed, with focus on Japanese bonds following yesterday's elections in Japan. Precious metals remain supported, with silver and gold extending their recovery from last week. The combination of dollar weakness and stabilizing risk sentiment creates a favorable backdrop for commodity-linked currencies, though the Canadian dollar has not fully participated in the rally.

Japan's Historic Election Victory Shifts Focus to Policy Execution:

Japan's ruling LDP party won 316 seats in yesterday's election, representing 68% of the lower house. Combined with their coalition partner Ishin, which secured 36 seats, they control over 75% of the lower house. The landslide was the largest victory for any Japanese party since World War II, giving Prime Minister Takaichi an overwhelming mandate to pass her aggressive stimulus-based legislative agenda. Japanese stocks hit record highs after the historic victory, while the yen and Japanese government bonds stayed relatively calm.

The focus now shifts to Takaichi's first 100 days with a supermajority. It is worth noting she is very hawkish on China, so that will be important to watch as well. For markets, the decisive outcome removes political uncertainty that had weighed on Japanese assets in recent months. The clear mandate for fiscal stimulus and structural reforms could support Japanese equities, though the implications for the yen remain uncertain given the Bank of Japan's cautious approach to policy normalization.

U.S. Data Week to Test Fed's Patient Stance:

The heavy data week ahead is going to test last week's dollar recovery, with the Dollar Index hovering near a two-week high. The three market moving releases arrive in quick succession: retail sales on Tuesday February 10, nonfarm payrolls on Wednesday February 11, and the January CPI on Friday February 13. January CPI often runs firm because price lists reset and seasonal factors can under adjust, and several desks are flagging an unusual early year rise in core goods prices in online data.

The Bureau of Labor Statistics will also publish annual benchmark revisions alongside the February 11 jobs report, following advance guidance that marked down the twelve months through March 2025 by about 911,000. This raises the risk that several 2025 payroll months turn negative after re-benchmarking. The combination of potentially weak payroll data and firm inflation prints would complicate the Federal Reserve's policy calculus, as it would suggest the economy is slowing while price pressures remain sticky.

Mixed Economic Signals Challenge Prior Convictions:

The macro data are sending mixed signals that challenge prior convictions about the cycle, but the pattern is consistent with a K shaped economy. Services and manufacturing both show stabilization to start the year, with the January ISM Services PMI holding at 53.8 and the ISM Manufacturing PMI rising to 52.6, the latter's first expansionary reading in a year. At the same time, labor demand looks softer, as private payrolls rose by only 22,000 in January and job openings slipped to about 6.5 million in December.

That divergence aligns with a K shaped backdrop in which high income consumption and continued investment in artificial intelligence sustain demand and productivity while trade exposed and middle-income segments face tighter hiring and tariff related price pressures. Against that backdrop, San Francisco Fed President Mary Daly has emphasized labor market risks even as she supported the Federal Open Market Committee's decision on January 28 to hold the policy rate at 3.50 to 3.75 percent. In last week's remarks, she said she could have made a case for easing a little more and kept the door open to additional cuts if hiring weakens.

Canadian Dollar Faces Structural Headwinds Despite Stable Data:

A light Canadian economic calendar leaves the Canadian dollar vulnerable to heavy U.S. data and global risk sentiment. To start the week, the Canadian dollar is trading near 1.36 despite disappointing domestic employment data from last Friday. Markets are opening with a softer U.S. dollar on expectations of weak U.S. labor data, though a firm CPI print could still complicate the Fed's path. Adding pressure to the U.S. dollar, reports emerged that Chinese regulators advised financial institutions to rein in their U.S. bond holdings due to market volatility.

Digging deeper in the labor market report from last Friday reveals structural softness that validates the market's hesitation to pick a direction. Wage growth cooled to 3.3% year over year, missing the 3.7% consensus, and private sector employment shrank by 52,000, signaling weaker business demand. With employment falling in key economic engines like Ontario, which lost 67,000 jobs, and manufacturing shedding 28,000 positions, the data paints a picture of an economy that is rebalancing rather than collapsing. This ambiguity leaves the Bank of Canada with little pressure to drastically alter its course, keeping USD/CAD anchored in its current consolidation pattern as traders await a clearer catalyst.

Canadian Data/Outlook:

It's a quiet week for Canadian economic data, with no major events on the calendar. As such, the Canadian dollar should take its cues from the broader macro landscape, including risk sentiment flows and the general direction of the U.S. dollar. The Bank of Canada is expected to remain on hold at 2.25% through the remainder of 2026, with the central bank comfortable at the bottom of the neutral range for the foreseeable future. Last Friday's employment data showed mixed signals, with the unemployment rate falling to 6.5% despite a loss of 24,800 jobs, as the decline was driven by people leaving the workforce. The jobless rate being closer to 6.5% than 7.0% suggests some resilience in the labour market, though the decline in net employment and falling participation rate indicate underlying softness.

Fed Watch:

The main event of the week will be nonfarm payrolls on Wednesday for January, with CIBC economists looking for a slightly below consensus print. A soft reading should modestly raise bets for a Q1 rate cut from the Federal Reserve, something that remains a tail risk and not the base case. CIBC strategists are forecasting core and headline inflation to print in line at 0.3% in January, largely due to higher services costs. The latest JOLTS estimates do not shift the policy outlook. The base case remains that the FOMC focuses on the next inflation prints and, provided price pressures ease, delivers 25 basis point cuts in June and December, while monitoring subsequent labor reports for any deterioration in conditions. Vice Chair Philip Jefferson has articulated a bridge from growth resilience to policy patience, describing himself as cautiously optimistic that disinflation will resume as tariff pass through fades and productivity remains firm. He said the current stance is broadly within the neutral range with a bias to wait for clearer evidence before easing again.

Technical Picture:

Resistance: 1.3668 (24hr high), 1.3728 (61.8% Fibonacci retracement), 1.3900 (CIBC selling level and likely range top)
Support: 1.3574 (24hr low), 1.3494 (200-week moving average and key support level), 1.3420 (September 2024 low)
Outlook: USD/CAD is once again fighting the final boss of support at the 200-week moving average. Two weeks ago, the pair broke through this support level temporarily but failed to close below it on a weekly basis. All eyes are on this week's price action. CIBC strategists are buyers at these levels and sellers toward 1.3900, favoring playing this range for the time being. The pair remains in a downtrend, with price struggling to break the 61.8% Fibonacci level of the trend channel. A sustained break below 1.3494 on a weekly closing basis would shift focus to the September 2024 low at 1.3420 and potentially open the door to deeper losses. For USD buyers, current levels represent a potential entry point, though waiting for confirmation above 1.3668 would provide more confidence. For CAD buyers, rallies toward 1.3728 to 1.3900 would represent selling opportunities.

Week Ahead:

The week ahead features a heavy U.S. data calendar that will test the dollar's recent recovery and provide critical insight into the Federal Reserve's policy path. Retail sales on Tuesday will offer the first look at consumer spending in 2026, while Wednesday's nonfarm payrolls report will be closely watched for signs of labor market softening. The annual benchmark revisions released alongside the jobs report could significantly alter the narrative around labor market strength if several months turn negative after re-benchmarking. Friday's CPI report will be crucial in determining whether inflation pressures are easing as the Fed hopes or remaining sticky due to higher services costs. For USD/CAD, the immediate question is whether the pair can hold support at the 200-week moving average on a weekly closing basis or if a sustained break below 1.3494 will open the door to deeper losses toward 1.3420.

Other Notes:

• EUR/USD Tests Fair Value Zone: EUR/USD slipped about 0.3% into the weekly close as the market unwound the sentiment heavy euro bid built during the recent USD selloff but pared some losses on Friday as the U.S. macro story failed to gain traction in support of the greenback. The pair is now trading much closer to its fair value zone, which has drifted toward the upper 1.17 area. Meanwhile, overnight reports that Chinese regulators advised financial institutions to rein in their holdings of U.S. Treasuries on market volatility concerns helped keep the pair sentimentally inflated into the week's start, hovering in the 1.18 area. With U.S. fundamentals still muddled, EUR/USD remains gravitationally pulled toward 1.18 until U.S. jobs and inflation prints this week offer clearer direction.
• Sterling Faces Political Strains: A combination of renewed political risk and last Thursday's unexpectedly dovish steer from the Bank of England has flipped the pound's near-term outlook. GBP/USD has slipped below 1.36 this morning and is now fighting to hold the 21-day moving average. There's a cluster of support levels between here and the mid-1.33s that could slow the pace of decline, but the tone has clearly shifted. Those political risks escalated over the weekend as Morgan McSweeney resigned as Chief of Staff to the Prime Minister, citing the fallout from the Mandelson affair. The move is intended to shield PM Keir Starmer, but recent history suggests such resignations tend to buy limited time, and political commentators now see the leadership backdrop as more fragile.
• ECB Policy Stance: On the Canadian side, the ECB held steady as expected. President Lagarde's neutral tone reinforced the idea that eurozone resilience and limited concern about currency driven disinflation keeps the policy stance firmly in wait and see mode. That restored neutrality shifts the spotlight back to the U.S. side of the rate differential, just as the FOMC's recent labour market optimism faces a reality check. This backdrop will be quite instructive this week in delineating short-term EUR/USD price action, with the U.S. jobs report set to either challenge or validate the FOMC's more upbeat labour market outlook.
• Precious Metals Recovery: Precious metals remain supported with silver and gold extending their recovery from last week. The stabilization follows the historic selloff triggered by the nomination of Kevin Warsh as the next Federal Reserve Chair. The recovery suggests Friday's move was a sharp correction rather than a trend change, though analysts caution that the charts remain extended. 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.

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. Vantry Capital Inc.