USD/CAD Market Update

USD/CAD Slides to 1.3537 – Tuesday, February 10, 2026

Current Level: Mid-1.35s (24hr range 1.3530–1.3577)

USD/CAD is trading near 1.3537 on Tuesday morning, extending its decline from yesterday's North American session as the U.S. dollar remains under pressure across the G10 basket. The pair has dropped below the 1.36 handle following disappointing U.S. retail sales data that showed consumer spending stalled in December, missing expectations and raising questions about the strength of the American consumer heading into 2026. Markets are now focused on a critical week of U.S. economic data, including tomorrow's nonfarm payrolls report and Friday's CPI release, 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 slightly higher as traders digest the implications of weaker consumer spending data. The U.S. dollar is lower against the entire G10 basket, with the Japanese yen outperforming for a second consecutive day following the recent election results. Global bond yields have fallen across the curve as traders began pricing in a more aggressive easing path from the Federal Reserve, with Treasury futures jumping on the softer retail sales print. Precious metals remain choppy, with gold and silver easing following yesterday's rally. The combination of softer U.S. economic data and declining bond yields creates a challenging backdrop for the U.S. dollar.

U.S. Retail Sales Disappoint, Raising Consumer Concerns:

U.S. retail sales for December came in flat at 0.0% versus expectations for a 0.4% gain, significantly missing consensus and signaling a pause in consumer momentum as the holiday season concluded. The weakness was broad-based, with nine of fourteen retail sectors contracting. Notable declines appeared in clothing stores, furniture outlets, and auto dealers, while only a few categories such as sporting goods and building materials posted gains. The retail control group, which excludes volatile categories and feeds directly into GDP calculations, showed notable weakness at negative 0.1%, particularly in categories sensitive to tariffs such as furniture, electronics, and clothing.

The data highlights growing pressure on American consumers from elevated prices and more moderate wage growth. While fourth quarter consumption still tracks at a robust 2.7%, the underlying trend suggests consumers remain constrained. Some analysts point to severe winter weather and deep holiday discounts as factors that may have distorted the December reading, making it harder to gauge true consumer sentiment. The disappointing print has quickly translated to financial markets, with bond yields sliding and the dollar weakening as traders increase bets on Federal Reserve easing later this year.

Critical U.S. Data Week Ahead Tests Fed's Patient Stance:

Markets face a heavy U.S. data calendar this week that will test the Federal Reserve's patient stance on rate cuts. Tomorrow's nonfarm payrolls report is expected to show 63,000 jobs added in January with the unemployment rate declining to 4.3%, indicating a labor market that remains tight but is cooling from previous highs. This level of job creation is consistent with a soft landing scenario where the labor market normalizes without significant distress. Friday's CPI expectations are particularly noteworthy, with core inflation expected to rise 0.4% month over month, translating to an annualized pace well above the Federal Reserve's 2% target.

The mention of early tariff pass-through in inflation expectations suggests inflationary pressures are beginning to manifest from trade policy changes, which could complicate the Fed's policy calculus. Both releases will be closely watched and may impact USD/CAD direction for the remainder of the week. Markets are now pricing in about 58 basis points in Federal Reserve cuts by year-end, up from previous expectations, as the weaker retail sales data reinforces the case for monetary easing.

German Interest in Canadian Auto Sector Grows:

German officials are expressing strong interest in Canada's automotive industry following the country's new auto sector strategy. Economic Affairs and Energy Minister Katherina Reiche described Canada's approach as highly appealing to German manufacturers, noting their readiness to make investments in the country. This interest builds on existing German presence, with Volkswagen already constructing an electric vehicle battery facility in St. Thomas, Ontario. During discussions in Ottawa with key Canadian ministers including Melanie Joly and Tim Hodgson, the focus was on Canada's $3.1 billion investment package designed to attract automotive sector capital. The development represents a positive signal for Canadian economic prospects, though the immediate impact on the currency remains limited.

Canadian Airlines Suspend Cuba Service Amid Fuel Crisis:

Major Canadian airlines have temporarily ceased Cuba service as the island nation grapples with severe aviation fuel shortages. Air Canada, WestJet, and Air Transat have all suspended operations while arranging repatriation flights for stranded passengers. The fuel crisis stems from U.S. tariff threats against nations providing oil to Cuba, prompting the Cuban government to warn international carriers of supply constraints. Canadian authorities had previously issued travel warnings about potential disruptions to resort operations and air service due to the energy shortage. Cuba is responding by concentrating tourists in fewer accommodations to manage its limited energy resources more effectively.

Canadian Data/Outlook:

Canada has no major economic data releases today, with the main event of the week being Friday's employment report for January. The light Canadian economic calendar leaves the Canadian dollar vulnerable to heavy U.S. data releases and global risk sentiment. 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. RBC forecasts the BoC overnight rate to remain at 2.25% through all of 2026. The federal government's comprehensive automotive strategy centered on tax incentives and the new EV rebate program providing up to $5,000 for battery electric and fuel cell vehicles represents a positive development for the Canadian economy, though the immediate currency impact remains muted.

Fed Watch:

The Federal Reserve is expected to remain on hold at its next policy meeting on March 18, though markets are now pricing in approximately 58 basis points of rate cuts by year-end following the softer retail sales data. The base case remains that the FOMC focuses on upcoming 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. RBC forecasts the Fed funds rate upper bound to remain at 3.75% through the end of 2026. 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: 1.3577 (24hr high), 1.3629 (must hold above to maintain corrective rally), 1.3728 (61.8% Fibonacci retracement and key resistance), 1.3806 (secondary resistance)
Support: 1.3530 (24hr low), 1.3529 (near-term downside target), 1.3482 (January low and key support level), 1.3420 (September 2024 low)
Outlook: USD/CAD's corrective rally has lost steam at resistance near 1.3728, with Monday's close below 1.3629 support suggesting the bounce is exhausted. The pair is now targeting downside levels at 1.3529 and the January low of 1.3482. A daily close above 1.3728 would be needed to extend the correction toward secondary resistance at 1.3806, while the broader downtrend pivot remains at 1.3841. RBC maintains a bearish bias with corrective rallies viewed as selling opportunities, expecting 1.3932 to act as strong resistance and likely define the upper range boundary. The technical structure suggests USD/CAD remains in a broader downtrend despite the recent bounce, with multiple resistance levels capping upside potential while downside targets come back into focus.

Week Ahead:

The week ahead features critical U.S. economic data that will provide insight into the Federal Reserve's policy path. Tomorrow's nonfarm payrolls report will be closely watched for signs of labor market softening, with the annual benchmark revisions potentially altering 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 tariff-related price increases. For USD/CAD, the immediate question is whether the pair can hold support at 1.3530 or if a sustained break below this level will open the door to deeper losses toward 1.3482 and potentially 1.3420. The combination of softer U.S. economic data and declining bond yields suggests the path of least resistance remains lower for the pair in the near term.

Other Notes:

• EUR/USD Supported by Diversification Flows: The euro posted its second strongest daily gain since September on Monday, breaking through the $1.19 handle, a level it has only traded above for seven days since 2022. The pair is being supported by firmer global risk sentiment, a steeper U.S. yield curve, and an extended rebound in silver. With metals and FX correlations running unusually high, the backdrop continues to favor a grind higher in the near term, even if stretched long positioning remains a headwind. The 30-day EUR/USD to silver correlation now sits in the 75th percentile of the past five years, a reminder that metals sentiment is exerting an unusually strong pull on the pair.
• GBP/EUR Flashes Political Stress: Sterling shed losses across the board yesterday on spreading fears that Prime Minister Keir Starmer's leadership is in the balance. Scottish Labour Leader Anas Sarwar urged Starmer to quit over his controversial appointment of Peter Mandelson as U.S. ambassador, adding to a series of criticisms from Labour backbenchers. GBP/EUR remains the clearest channel through which the market is expressing sterling's risk premium tied to rising political uncertainty. Heavier spot selling this month is now joined by the most bearish repricing in GBP/EUR risk reversals across tenors since the pre-budget period, suggesting investors are willing to pay the highest premium to hedge against GBP weakness versus euro strength.
• China Advises Banks to Trim U.S. Treasury Holdings: Reports emerged that Chinese regulators are advising financial institutions to trim their U.S. bond holdings to mitigate exposure to market volatility. This development has contributed to downward pressure on the U.S. dollar, with Treasury futures jumping and yields sliding across the curve. The move reflects broader concerns about U.S. fiscal sustainability and adds to the narrative of diversification away from dollar-denominated assets.
• USD/CAD Volatility Indicators: The pair has experienced significant two-way volatility over the last quarter, peaking near 1.411 in early November before descending to a late January trough of approximately 1.348. Risk reversals are currently pinned near the bottom of their six-month range, indicating that market participants are actively paying a premium to hedge against further USD depreciation rather than positioning for a meaningful rebound. Coupled with elevated At-The-Money volatility across shorter tenors, the data points toward a period of sustained turbulence and price instability.

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.