USD/CAD Market Update

USD/CAD Surges to 1.3687 – Tuesday, February 17, 2026

Current Level: High-1.36s (24hr range 1.3634–1.3690)

USD/CAD is trading near 1.3687 on Tuesday morning, climbing higher following the release of Canadian inflation data that came in below expectations. The pair gained approximately 60 pips from overnight lows as January CPI showed headline inflation at 2.3% year-over-year versus the previous 2.4%, while the monthly reading printed at 0.0% against expectations of 0.1%. The softer inflation data has prompted markets to increase pricing for potential Bank of Canada rate cuts, though analysts note this may not shift the central bank's policy stance given their recent signals of comfort with rates at current levels.

Market Overview:

Risk appetite is fragile this morning, with equity markets opening lower to start the Lunar New Year. The U.S. dollar is stronger versus the G10 basket, with limited foreign exchange moves worth reporting. Global bond yields are mostly lower, with Canadian yields down a couple of basis points following the soft CPI report. Precious metals are lower with gold and silver selling off to start the holiday-shortened week. The combination of softer Canadian inflation data and cautious risk sentiment is supporting the U.S. dollar against the Canadian currency.

Canadian Inflation Cools Below Expectations:

Canada's Consumer Price Index rose 2.3% year-over-year in January, marking a deceleration from the 2.4% gain observed in December. The monthly reading came in at 0.0% versus expectations of 0.1%. The cooling in headline inflation was primarily driven by gasoline prices, which posted a significant decline of 16.7% due to base year effects. While the headline number softened, underlying pressures persist as the CPI excluding gasoline rose 3.0%, matching the increase from the prior month.

Upward pressure came from items previously affected by the temporary GST/HST break in early 2025, such as restaurant meals and alcoholic beverages, which are now showing stronger price growth in annual comparisons. The Bank of Canada's preferred core measures showed some moderation, with CPI median at 2.5% and CPI trim at 2.6%. The 3-month annualized trend in trim and median CPI now sits at just 1.2%, falling sharply from 2.8% in October. Shelter costs are finally slowing, with year-over-year growth falling to 1.7%, the first time it has dropped below 2.0% in nearly five years.

RBC strategists note that despite the lower reading, this release is unlikely to shift the Bank of Canada's hold policy stance. Their latest meeting signaled comfort with rates at the bottom of their estimated neutral range of 2.25% to 3.25%. However, before the CPI release, markets were pricing approximately 33% odds of a BoC cut, largely influenced by the move in U.S. Treasuries last week. Today's CPI data will likely add fuel to rate cut pricing. If growth data shows weakness and inflation trends point to sub-2% inflation, the BoC might be compelled to act, though this is not the base case for most analysts.

U.S. GDP and PCE Data Due Friday:

The U.S. economic calendar features Q4 GDP growth data scheduled for Friday, with RBC forecasting 3.5% growth driven primarily by consumer strength from momentum in October and November. December personal spending will likely be more subdued at 0.2%, consistent with softer retail sales and limited personal income growth of 0.1%. RBC expects a third consecutive quarterly inventory drawdown in Q4, an exceptionally rare occurrence outside of recession. This reflects the unwinding of Q1 inventory surges driven by tariff front-running.

As pre-tariff inventories are depleted, firms will face pressure to raise prices to preserve margins, with direct implications for inflation's path ahead. Tariffs will not yet be fully captured in PCE price data given delayed pass-through, but RBC expects a hotter PCE print for December. Their forecast calls for core PCE to rise 0.4% month-over-month, nudging the year-over-year pace higher to 2.9%. Headline PCE is expected to rise 0.3%, leaving the year-over-year pace steady at 2.8%. CIBC economists are looking for a below consensus GDP call of 2.4% versus 2.8% consensus, noting that the divergence between GDP and the job market over the last several years has made activity data a little less important to the Federal Reserve.

Canada Appoints New Chief Trade Negotiator:

Janice Charette has been named Canada's new chief trade negotiator with the United States. The former UK high commissioner assumes the position just months before the CUSMA review commences, amid strained Canada-U.S. relations. Charette, who twice held the role of clerk of the privy council and brings nearly four decades of experience, will collaborate closely with Mark Wiseman, the former Bay Street executive who replaced Kirsten Hillman as Canada's U.S. ambassador this week. The appointment comes at a critical time as the USMCA agreement faces a scheduled review for potential extension by July 1, with trade policy uncertainty continuing to weigh on the Canadian dollar outlook.

Canadian Data/Outlook:

Today's main event was the January CPI report, which printed at a monthly rate of 0.0% versus 0.1% consensus, bringing the annualized pace of headline inflation from 2.4% to 2.3%. Soft gasoline prices and low shelter costs pulled the averages lower. The Bank of Canada's key measures of core inflation also eased in January, with CPI-Trim falling from 2.7% to 2.4%, the lowest level since 2021. For markets, the Canadian dollar and domestic bond yields fell slightly after the soft inflation report, as traders increase bets of looser monetary policy. CIBC maintains their house view that the Bank of Canada is done cutting interest rates, with the central bank expected to remain on hold at 2.25% through the remainder of 2026. RBC forecasts the BoC overnight rate to remain at 2.25% through all of 2026, with the central bank comfortable at the bottom of the neutral range.

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 unchanged policy through the near term. RBC forecasts the Fed funds rate upper bound to remain at 3.75% through the end of 2026. Markets are not sweating a major surprise on GDP data in either direction, keeping their focus on jobs and inflation data. The divergence between GDP and the job market over the last several years has made activity data a little less important to the Fed. Barring a downside surprise on Friday's PCE release, the data would help cement the dollar's posture above short-term technical indicators. However, analysts remain doubtful of any sustained move above 98 on the dollar index in the medium term.

Technical Picture:

Resistance: 1.3728 (61.8% retracement of 2023-2025 advance and key resistance), 1.3816 (trendline serving as pivot for downtrend), 1.3900 (CIBC selling level and likely range top)
Support: 1.3634 (24hr low), 1.3600 (CIBC buying level and key support), 1.3494 (76.4% retracement and 200-week moving average), 1.3482 (January 30 low and critical support)
Outlook: CIBC notes that USD/CAD has closed once again above the 200-week moving average, which is good news for bulls. Current levels favor USD buyers, with CIBC targeting a 1.3600 to 1.3900 range in the near term. RBC notes that rallies toward resistance at 1.3728 are expected to attract selling interest as the medium-term downtrend continues. The 1.3482/1.3494 support zone held after a second test last week. A daily close below 1.3482 would trigger a new bearish phase, exposing the September 2024 low at 1.3420. The trendline at 1.3816 serves as the pivot for the downtrend and stop loss for the bearish view.

Week Ahead:

The week ahead features Friday's U.S. GDP and PCE data as the main events. The GDP report will provide insight into Q4 economic growth, though markets are less focused on activity data given the recent divergence between GDP and labor market performance. The PCE deflator, the Fed's preferred inflation gauge, is expected to show core inflation ticking higher on both a monthly and yearly basis. Barring a downside surprise, the release would help cement the dollar's posture above short-term technical indicators. For USD/CAD, the immediate question is whether the pair can hold above the 200-week moving average or if renewed selling pressure will push the pair back toward support at 1.3600 and 1.3494.

Other Notes:

• Chinese New Year Celebrations: Today marks Chinese New Year, the first day of the Year of the Horse. Historical data shows the Year of the Horse has the lowest average market returns over the last century, though analysts hope this time will be different. Equity markets are lower to start the holiday-shortened week, deepening last week's losses.
• EUR/USD Holds Above Key Support: The euro remains comfortable above fair value, with the February low at 1.1766 aligning with the 21-day moving average, reinforcing that euro buyers are in firmer control. News over the weekend that the ECB expanded its EUREP repo lines from a narrow European audience to the global central bank community keeps the dollar diversification story alive in investors' minds. Eurozone finance ministers are discussing ways to expand the single currency's global role by promoting its use in both issuance and transactions.
• Sterling Faces Pressure from Dovish Jobs Report: Sterling is extending losses after UK wage growth undershot expectations and the unemployment rate climbed to a near five-year high. December's weekly earnings rose 4.2% versus 4.6% expected, while regular private-sector pay slowed to 3.4%, its weakest pace in more than five years. Odds of a March Bank of England cut have climbed to roughly 80%, up from around 70% just a day ago. GBP/USD has slipped below its 21-day moving average, putting the 50-day near $1.3525 in view.
• Dollar Weakness Reflects Shifting Sentiment: The U.S. dollar remains undervalued relative to macro-warranted fair value, with technical barriers losing robustness when encountered in such dislocated zones. Sentiment toward the dollar, reminiscent of post-Liberation Day's aftermath, remains soft. The 21-day moving average on the DXY appears fragile, with short-squeezing flows likely to trigger a bullish crossover this week. While analysts do not expect much market reaction from the PCE data, the core component is expected to tick higher on both a monthly and yearly basis from November's figures.
• Canadian Olympic Success: Canada claimed its first two gold medals on the slopes at the Milano Cortina Olympics. Quebec freestyle skier Mikaël Kingsbury won gold in dual moguls in what was the final Olympic run of his career, also earning silver in the traditional moguls event earlier in the Games. Canadian freestyle skier Megan Oldham captured Canada's second gold by defeating China's defending champion Eileen Gu in big air, complementing the bronze she secured in slopestyle last week.

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.