USD/CAD Market Update

USD/CAD Rallies to 1.3625 – Friday, February 13, 2026

Current Level: Low-1.36s (24hr range 1.3598–1.3638)

USD/CAD is trading near 1.3625 on Friday morning, climbing from overnight lows as the U.S. dollar gains modest support following this morning's inflation report. The January CPI data came in cooler than expectations, with headline inflation rising 0.2% versus the 0.3% consensus and the annualized pace declining to 2.4% from 2.7% previously. Core inflation matched forecasts at 0.3% monthly but brought the yearly pace down to 2.5%, marking a new five-year low and suggesting that firms are absorbing tariff costs while a softer labor market keeps wage growth in check.

Market Overview:

Risk appetite is mixed this morning, with equity markets struggling to regain ground despite the soft inflation print. The U.S. dollar is marginally stronger versus the G10 basket, though foreign exchange moves remain limited. Global bond yields are lower as the CPI report boosts expectations of a more dovish Federal Reserve. Precious metals are recovering from yesterday's sharp drawdown that saw silver trade 10% lower. The combination of softer inflation data and declining bond yields creates a complex backdrop for the dollar, with traders now pricing in 50% odds of a third rate cut this year.

U.S. Inflation Cools to Five-Year Low:

The January CPI report provided encouraging news for Federal Reserve policymakers, with headline inflation increasing just 0.2% versus expectations for a 0.3% gain. The annualized pace declined to 2.4% from 2.7% in December, coming in cooler than anticipated. Core CPI rose 0.3% monthly, matching forecasts, but brought the yearly pace down one tick to 2.5% from 2.6% previously. This represents a new five-year low in core inflation, suggesting that firms are absorbing tariff costs and that a softer labor market is keeping wage growth in check.

The data has increased expectations of a more dovish Federal Open Market Committee, with traders now pricing in 50% odds of a third rate cut this year. The softer inflation print may help equities recover some losses from this week's selloff. However, CIBC economists note that the data does not change their house views for the Federal Reserve or USD/CAD. The encouraging inflation numbers come at a time when the labor market shows signs of cooling, creating a scenario where the Fed may have more room to ease policy if economic conditions warrant.

Equity Market Stress Signals Broader Concerns:

Equity markets are mixed this morning, with major indices struggling to recoup losses from this week's drawdown. Over the last eight sessions, 115 stocks in the S&P 500 have declined 7% or more in a single day. This is the first time that this has happened since the dot com bubble in early 2000. While the S&P 500 is only 2.5% below its all-time high, many stocks are already deep into bear market territory. Household names are down 25% to 45% in 2026, highlighting the divergence between index performance and individual stock performance.

The equity market stress reflects growing concerns about valuations and the sustainability of the artificial intelligence investment boom. While correlation does not mean causation, the breadth of the selloff is worth noting as it suggests underlying fragility in market sentiment. The recovery attempt this morning remains tentative, with investors waiting for more clarity on both economic data and corporate earnings guidance.

Dollar Weakness Reflects Shifting Sentiment:

The U.S. dollar's muted reaction to the softer inflation data fits the broader narrative of weakening dollar sentiment. Not only was the recent macro data failing to support a bullish bias, but the currency is already weighed down by soft sentiment. The dollar index is almost 1% lower week to date at a time when a resilient macro backdrop should have offered support. Instead, traders may be treating any USD strength as an opportunity to sell on longer-term considerations.

The sharp reversal in institutional investors' net bearish positioning in 2026 is instructive. These investors hold long-horizon foreign exchange views, and when shifts are as pronounced as those captured in the February 3 snapshot, they tend to shape trading behavior. On the leveraged fund side, this week's dollar price action suggests a net bearish dollar index snapshot is likely in the next release, undermining the tactical trade that had anticipated selling into soft sentiment but buying into strong macro data. The dollar index is expected to continue trading around the 97 level into the week's close, with lingering soft sentiment and today's inflation report capping any more meaningful upside.

Canadian Data/Outlook:

Canada has no major economic data releases today, with the focus remaining on broader market developments and U.S. data. 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 Canadian dollar faces headwinds from trade policy uncertainty and the potential for USMCA renegotiation, though the light Canadian economic calendar leaves the pair vulnerable to U.S. data releases and global risk sentiment shifts.

Fed Watch:

The Federal Reserve is expected to remain on hold at its next policy meeting on March 18, with current market pricing pointing to a resumption of interest rate cuts later this year. Markets are now pricing in 50% odds of a third rate cut this year following today's softer inflation data. RBC forecasts the Fed funds rate upper bound to remain at 3.75% through the end of 2026. The encouraging inflation print may provide the Fed with more flexibility to ease policy if labor market conditions deteriorate further. However, CIBC economists note that the data does not change their house views for the Federal Reserve, suggesting that the central bank will remain patient and data dependent in its approach to monetary policy.

Technical Picture:

Resistance: 1.3638 (24hr high), 1.3900 (CIBC selling level and likely range top), 1.3932 (strong resistance marking likely range top)
Support: 1.3598 (24hr low), 1.3600 (CIBC buying level and key support), 1.3494 (200-week moving average and critical support level), 1.3482 (January low)
Outlook: Today is the last day for confirmation on the weekly candle. A close above the 200-week moving average rejects the downward thesis and would support the view that USD/CAD will revert to its 1.3600 to 1.3900 range in the near term. CIBC strategists continue to think that current levels favor USD buyers, believing that USD/CAD will revert to this range. The pair remains in a broader downtrend despite the recent bounce, with multiple resistance levels capping upside potential. The strategic view from CIBC is to continue buying at 1.3600 and selling at 1.3900, favoring this range for the time being.

Week Ahead:

The week ahead features a quiet start with U.S. markets closed Monday for Presidents Day. The focus will shift to broader market developments and any updates on trade policy, particularly as markets move closer to the July 1 USMCA review deadline. For USD/CAD, the immediate question is whether the pair can hold above the 200-week moving average on a weekly closing basis or if the recent rally will stall at technical resistance. The USMCA review deadline adds a longer-term source of uncertainty for the Canadian dollar, though markets will likely wait for more concrete developments before pricing in significant trade policy changes.

Other Notes:

• EUR/USD Holds Gains Near 1.18: The euro remains comfortable in the 1.18 handle, with the February low at 1.1766 aligning with the unbroken 21-day moving average, reinforcing that euro buyers are in firmer control and waiting for fresh catalysts to justify a leg higher. After pushing up and meeting resistance at 1.1930 on February 9, the pair now hovers just above the upward sloping 21-day average at 1.1814. Today's U.S. inflation release could provide that catalyst, with confirmation of cooling inflation potentially leading to a retest of the 1.19 mark. Talks around boosting the euro's international role continue, with ECB Executive Board member Piero Cipollone stressing that greater use of the euro in trade invoicing would make the eurozone less vulnerable to foreign exchange volatility and reduce the pass-through of exchange rate shocks to domestic inflation.
• Sterling Buckles Under Risk Aversion: Sterling is one of the higher-beta currencies in the G10, so yesterday's equity selloff naturally weighed on the pound. GBP/USD is grappling to stay above the $1.36 handle this morning, and a close below that level would take out the 21-day moving average support, hinting that the recent uptrend is losing steam. The options market also shows signs of caution with negative risk reversals the further out the time horizon, reinforcing the market's preference for GBP downside protection over longer tenors. The domestic backdrop is bleak for sterling, with the UK economy growing by just 1.3% in 2025, leaving the UK on course for its weakest decade of growth since the 1920s.
• Precious Metals Remain Choppy: Precious metals are recovering from yesterday's sharp drawdown that saw silver trade 10% lower. The volatility follows last week's historic selloff triggered by the nomination of Kevin Warsh as the next Federal Reserve Chair. The stabilization suggests the worst of the volatility may have passed, though the charts remain extended. The recovery in precious metals is providing some support to commodity-linked currencies, though the Canadian dollar has not fully participated in the rally.
• Labor Market Weakness Signals Divergence: After an initial Treasuries selloff following Wednesday's upbeat nonfarm payrolls release, short-end yields have now eased back to pre-release levels. The rebound reflects growing skepticism about the labor market trajectory, with annual benchmark revisions lowering the average 2025 monthly job gain to just 15,000. The picture remains one of a low hire, low fire equilibrium, and the hawkish bias embedded in the front end of the curve struggled to hold up. The dollar's muted reaction fits this story, with the currency already weighed down by soft sentiment.

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.