USD/CAD Market Update

USD/CAD Firms to 1.3686 – Monday, February 23, 2026

Current Level: High-1.36s (24hr range 1.3650–1.3700)

USD/CAD is trading near 1.3686 on Monday morning, holding steady in the high-1.36s as traders assess the implications of Friday's Supreme Court decision and the administration's rapid policy response. The pair is caught between reduced tariff uncertainty, which typically weighs on the dollar, and elevated geopolitical tension plus potential policy surprises that provide support. Markets face a critical week ahead with Thursday's Iran negotiations, the State of the Union address on Tuesday, and Friday's Canadian GDP release all capable of driving directional moves.

Market Overview:

Risk appetite is cautious this morning as traders return from the weekend to process the Supreme Court ruling and its immediate aftermath. The U.S. dollar is slightly weaker versus the G10 basket, though foreign exchange moves remain limited. Global bond yields are mixed, with no major shifts worth reporting. Precious metals are supported, with gold and silver rising to start the week. The combination of tariff policy uncertainty and geopolitical concerns creates a complex backdrop for currency markets, with traders awaiting clarity on the administration's next steps.

Supreme Court Strikes Down IEEPA Tariffs:

The U.S. Supreme Court ruled 6 to 3 on Friday that the administration's emergency trade powers under IEEPA do not authorize tariffs, eliminating roughly 60% of 2025's tariff burden. The Court made clear that the power to tax belongs to Congress, not the executive branch acting under emergency authority. However, the ruling leaves significant portions of the protectionist landscape untouched. Sectoral tariffs built on older statutes remain in place, including 25% to 50% duties on steel and aluminum under Section 232, longstanding Section 301 tariffs on Chinese electronics and technology, and duties on softwood lumber and certain automobile parts based on national security or anti-subsidy findings.

The administration responded quickly, announcing over the weekend that it will implement a global blanket tariff of 15% using Section 122 authority starting Tuesday. U.S. Trade Representative Jamieson Greer defended the move, stating that the urgency of the situation demanded the jump from 10% to 15%. The President has called the ruling a disgrace but has shown the executive branch will find other avenues to keep its trade agenda alive. Importantly, the President can no longer use emergency powers to threaten partners without constraint, though the administration has promised to launch new Section 301 investigations to sustain tariffs beyond the immediate horizon.

Section 122 Structure Offers Canada Material Relief:

The new 15% Section 122 tariff is structurally different from IEEPA and materially better for Canada. Unlike the country-specific IEEPA regime that created sharp cross-border distortions, Section 122 functions as a uniform import tax that is less distortionary to capital allocation. USMCA-compliant goods from Canada and Mexico remain exempt, protecting roughly 85% of Canadian exports. Broad product exemptions include energy, critical minerals, pharmaceuticals, semiconductors, autos and auto parts, agriculture, and lumber.

The 15% rate is legally capped for 150 days, until late July, making this an interim measure while the administration pursues more durable tariffs under Sections 232, 301, or congressional action. For Canadian mid-market corporates, energy and resource exporters are fully protected, with oil, gas, electricity, critical minerals, copper, and lumber remaining exempt. The auto sector faces minimal disruption, as vehicles and most parts are exempt if USMCA-compliant. Pharmaceutical and medical device companies are carved out from chemical inputs through finished products. Manufacturing with non-USMCA inputs faces new pressure, as companies sourcing components outside North America that do not qualify for product exemptions are now subject to 15% duties.

The shift creates a mixed landscape globally. Countries previously singled out for criticism are seeing their average tariff rates drop. China sees a 7.1% reduction in its effective rate. Meanwhile, traditional allies like the European Union, the United Kingdom, and Japan are bracing for the biggest hit as they move from historically lower rates straight into the 15% line of fire. For Canada, the immediate threat of universal fentanyl tariffs is gone, as the ruling means the President can no longer use emergency authority to threaten partners. However, there is a growing sense that losing this broad emergency shortcut might make the administration more desperate to use the upcoming USMCA review to exert maximum pressure on Canada.

Tariff Refunds Unlikely Despite Court Ruling:

The $175 to 200 billion in collected tariffs under the now-invalidated IEEPA regime will not be refunded anytime soon. The administration has indicated the process will be tied up in litigation for years, removing one potential dollar-negative catalyst. The issue of tariff refunds from the previous IEEPA era will now be heavily litigated in lower courts. This removes immediate pressure on the dollar from potential refund flows, though the long-term fiscal implications remain unclear.

Near-Term Catalysts for USD/CAD Direction:

Three catalysts will determine near-term direction for USD/CAD. Thursday's Iran negotiations represent a key geopolitical risk, as a breakdown would lift safe-haven dollar demand toward 1.3750 to 1.3800. The State of the Union address on Tuesday and NVIDIA earnings on Wednesday could produce policy surprises or weak guidance that would support the dollar. Friday's Canadian Q4 GDP release, with consensus at negative 0.2% and RBC forecasting a flat print, could push USD/CAD toward 1.3650 support if the data comes in at or above expectations, especially if Thursday's SEPH payrolls and current account data are strong.

U.S. Economy Shows Resilience Despite Q4 Slowdown:

The U.S. economy experienced a significant deceleration in Q4, with GDP increasing at an annualized rate of 1.4%. This figure represents a sharp moderation from the 4.4% expansion recorded in Q3 and fell short of all economist forecasts. A primary driver of this slowdown was a record-long government shutdown that occupied nearly half of the three-month period, which the Bureau of Economic Analysis estimates stripped approximately 1 percentage point from quarterly GDP. Despite this weak quarterly finish, the broader picture for 2025 remained resilient, as the economy expanded 2.2% over the full year.

Inflation data released alongside the GDP figures confirmed that price pressures remain stubborn. The core personal consumption expenditures price index, the Federal Reserve's preferred gauge for underlying inflation, rose 0.4% in December alone. This monthly increase was the largest in nearly a year and pushed the annual core PCE to 3%, up from the 2.8% level seen at the start of 2025. This upward trend suggests that despite the overall moderation in growth, the path toward the Fed's long-term targets is becoming increasingly gradual. This combination of shutdown-impacted growth and rising core inflation creates a difficult environment for future monetary policy.

Canadian Data/Outlook:

Canada has no major economic data releases today, with the focus remaining on broader market developments and U.S. data. The main event of the week will be Friday's GDP release for Q4 and December. CIBC economists are looking for an in-line print of positive 0.1% monthly versus positive 0.1% consensus, which would bring the annualized pace into negative territory at negative 0.2%. Policymakers will likely attribute weakness to structural factors, making next month's labor market data more important than GDP in determining the Bank of Canada's path for 2026. 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. 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 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. The persistent nature of price increases, paired with a labor market and consumer base that have shown historical resilience, may force the Federal Reserve to maintain restrictive interest rates for a longer duration. Recent Fed minutes skewed decidedly hawkish, with several participants supporting a two-sided description of the committee's future interest rate decisions. This indicates that if inflation remains at above-target levels, the Fed is prepared to consider upward adjustments to the target range for the federal funds rate, rather than just maintaining or cutting them.

Technical Picture:

Resistance: 1.3728 (61.8% retracement level that has repelled rallies on two occasions), 1.3795 (resistance trendline serving as pivot for broader downtrend since late November), 1.3856 (bullish reversal target if 1.3795 gives way)
Support: 1.3650 (24hr low), 1.3629 (initial support), 1.3576 (trendline that must be pierced to end corrective rally and reassert downtrend), 1.3482 (2026 low and critical support)
Outlook: The corrective rally underway since January 30 has been repelled by resistance at 1.3728 on two occasions. A bias to fade rallies remains unless 1.3795 gives way, which would generate a bullish trend reversal and shift focus to 1.3856. Prices will need to pierce the trendline at 1.3576 to end the current corrective rally and reassert the downtrend. The resulting bearish breakout would bring this year's low at 1.3482 back into focus. RBC's 1 to 3 month technical target remains at 1.3550. CIBC strategists continue to favor playing the 1.36 to 1.39 range for the time being.

Week Ahead:

The week ahead is packed with event risk. Tuesday's State of the Union address will provide insight into the administration's policy priorities ahead of November midterms. Wednesday's NVIDIA earnings will be closely watched for signals on artificial intelligence spending trends. Thursday's Iran negotiations represent a key geopolitical catalyst, with a breakdown potentially driving safe-haven flows into the dollar. Friday's Canadian GDP release is the main domestic data point, with a flat or positive print potentially reinforcing the Bank of Canada's hold stance and pushing USD/CAD toward 1.3650 support. U.S. producer price index data on Friday will offer another read on inflation pressures. The following week brings key U.S. labor market data, including the ISM Manufacturing PMI and the full employment report on March 6.

Other Notes:

• Mexico Violence Prompts Travel Advisory: The Canadian government has instructed citizens to shelter in place in Puerto Vallarta following an escalation of violence across Jalisco State on Sunday. Armed confrontations and roadblocks with burning vehicles intensified after Mexico's military killed a cartel leader as part of a broader government campaign against organized crime. Foreign Affairs Minister Anita Anand characterized the situation as serious and rapidly evolving. Air Canada, WestJet, Air Transat and Porter Airlines have cancelled or rerouted flights in response. Approximately 19,000 Canadians are currently in Mexico, with 5,000 located in Jalisco State.
• Alberta Immigration Referendum Planned: Alberta will put immigration restrictions to a referendum as the province grapples with rapid demographic change. The population has surged 15% to 5 million over the past five years, marking the fastest expansion in Canada. Premier Danielle Smith is confronting calls from some groups for greater provincial control. The October vote will address both constitutional and non-constitutional matters. Smith's government plans to release a budget Thursday that is projected to show a multi-billion-dollar shortfall. The Premier attributed the deficit to depressed oil prices and federal immigration policies.
• EUR/USD Faces Pressure from Rate Differentials: EUR/USD traded lower throughout the week and is now hovering below the 1.18 mark. Widening rate differentials, along with heightened geopolitical tensions, forced the move lower this week. On the U.S. side, strong data reinforced the narrative of a more stable labor market and resilient economic activity. On the euro side, the headline was Lagarde potentially stepping down earlier than expected. The move appears strategically political, intended to let leaders have a say in the next ECB president. Meanwhile, there were hints of dovishness tied to inflation undershooting, with ECB officials becoming more vocal about it.
• GBP Faces Biggest Weekly Decline in Over a Year: Sterling is on track for its biggest weekly decline against the dollar in more than a year, reflecting a decisive dovish turn in UK data. Unemployment has risen, wage growth has

  Market Mood:

  RSI (14):

  45.4

  Neutral territory

  RSI Scale: <30 Oversold | 30-40 Risk-Off | 40-60 Neutral | 60-70 Risk-On | >70 Overbought

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  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.