USD/CAD Market Update

USD/CAD Rallies to 1.3720 – Tuesday, February 24, 2026

Current Level: High-1.37s (24hr range 1.3692–1.3725)

USD/CAD is trading near 1.3720 on Tuesday morning, holding near multi-week highs as the U.S. dollar advances against most major counterparts. The pair has gained approximately 34 pips from the previous session, supported by a broadly stronger dollar and reduced tariff uncertainty following the Supreme Court's IEEPA ruling last week. Markets remain focused on the administration's Section 122 tariff implementation and upcoming policy events, with the pair testing technical resistance at 1.3728.

Market Overview:

Risk appetite is cautious this morning, with equity markets showing mixed performance as investors assess the implications of the Supreme Court's tariff ruling and the administration's policy response. The U.S. dollar is stronger across the G10 basket, though foreign exchange volatility remains near historic norms as traders downplay tariff risks. Global bond yields are mixed with no major moves worth reporting. Precious metals are lower, with gold and silver retreating after recent gains. The combination of reduced tariff uncertainty and elevated geopolitical concerns creates a complex backdrop for currency markets.

Supreme Court Ruling Reshapes Tariff Landscape:

The Supreme Court's Friday decision striking down IEEPA tariffs has limited near-term impact on USD/CAD fundamentals, according to RBC strategists. Canada's exposure to IEEPA tariffs was minimal, affecting less than 5% of exports given CUSMA exemptions cover 89% of shipments. Section 232 measures on metals, autos, and lumber remain the primary tariff headwind for Canada and were unaffected by the ruling. The administration's reported pivot toward broader Section 232 tariffs on batteries, industrial chemicals, and telecom equipment, alongside a global 15% tariff rate increase for five months replacing struck-down IEEPA measures, creates a mixed outlook for Canada.

The new tariff structure under Section 122 authority began collection this morning at a 10% rate, below the 15% threatened over the weekend. The White House remains committed to the higher levy but has not articulated an execution timeline. If IEEPA tariffs are not replaced on other trade partners, Canada could lose its competitive advantage as the lowest-tariffed U.S. trade partner, though overall U.S. import demand would strengthen. RBC maintains that preserving CUSMA exemptions through this year's renegotiations matters far more for the Canadian dollar than last week's court ruling.

Section 232 Investigations to Expand:

The administration is considering raising national security tariffs on at least six industries in the months ahead, adding batteries, electrical, and telecoms equipment to the list of investigations already underway against products like drones, robots, semiconductors, solar panels, and pharmaceuticals. The new tariffs under Section 232 of the Trade Expansion Act of 1962 require extensive investigations before implementation, but could see average applied tariff rates ratcheting higher once again, particularly for the largest Asian exporters. This implies that U.S. businesses are likely to engage in another round of inventory front-running, and that trade data will continue to throw up false signals.

Canadian Dollar Faces Domestic Headwinds:

The Canadian dollar remains on the defensive despite avoiding steep tariff increases in the administration's latest round. This likely reflects lingering uncertainty around USMCA negotiations, with traders braced for disruptive headlines even if the agreement ultimately survives. It also speaks to domestic weakness. Canada is still in the grip of one of the deepest housing downturns in the advanced world. After substantial gains before and after the pandemic, home prices have fallen more sharply than in peer economies and are showing little sign of stabilizing.

Credit flows to households have dropped sharply from their peak, echoing the pattern seen in the U.S. after the 2008 housing crash. With speculative activity fading and overindebted homeowners growing less willing to extract equity, spending and investment are under pressure, weighing on growth relative to the still-resilient U.S. economy. This backdrop is likely to represent a continuing headwind for the Canadian dollar in the months ahead.

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 and even separation. 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 what she called out-of-control federal immigration policies.

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. Markets expect 0.1% monthly growth, 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. 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. 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.

Technical Picture:

Resistance: 1.3728 (61.8% retracement level that has repelled rallies on two occasions), 1.3750 (RBC expected trading range top), 1.3790 (resistance trendline serving as pivot for broader downtrend since late November), 1.3856 (bullish reversal target if 1.3790 gives way)
Support: 1.3692 (24hr low), 1.3680 (RBC expected trading range bottom), 1.3629 (initial support), 1.3582 (trendline that must be pierced to end corrective rally and reassert downtrend), 1.3482 (2026 low and critical support)
Outlook: The corrective rally since January 30 has been rejected twice at resistance of 1.3728, with a higher resistance trendline at 1.3790 serving as the pivot for the broader downtrend in place since late November. The 1.3790 level remains critical. A break above would trigger a bullish trend reversal, shifting focus to 1.3856 and nullifying the medium-term bearish view. Downside, prices need to break below the 1.3582 trendline to end the corrective rally and reassert the downtrend, which would bring this year's low of 1.3482 back into focus. The 1 to 3 month technical target remains at 1.3550, consistent with the bearish medium-term outlook while 1.3790 holds. 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. Today's State of the Union address will provide insight into the administration's policy priorities, with traders looking for language on tariffs as Section 122 tariffs come into effect. Australian inflation data overnight will offer a read on price pressures in the Asia-Pacific region. Thursday's U.S. unemployment claims will provide an update on labor market conditions. 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. 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 JOLTS job openings, building toward the full employment report on March 6.

Other Notes:

• AI Concerns Weigh on Tech Stocks: Equity markets are attempting to attract buyers at currently elevated levels following yesterday's selloff in software companies. The catalyst appears to have been provided by a paper from Citrini Research outlining a hypothetical scenario in which artificial intelligence advances wipe out existing business models and drive the unemployment rate above 10%. The concerns are centered around the power of Anthropic's Claude and other models that raises existential risk for many industries. Software stocks have been under pressure, and even major technology names are losing their appeal, while energy and consumer staple stocks continue to push higher.
• Japanese Yen Under Pressure: The Japanese Yen is under pressure after news broke that Prime Minister Takaichi expressed concern about rate hikes in a meeting with Governor Ueda. The development suggests potential for reduced expectations around Bank of Japan tightening, which could have implications for global currency markets and carry trade positioning.
• EUR/USD Holds Above Fair Value: The euro remains comfortable above fair value, with the dollar advancing against most of its major counterparts. Measures of implied currency volatility are tracking near historic norms as foreign exchange traders downplay tariff risks. The combination of reduced tariff uncertainty and elevated geopolitical concerns creates a complex backdrop for the single currency.
• Chinese Yuan Firms After Holiday: The Chinese yuan is firming as markets reopen following the Lunar New Year holiday. A slate of Federal Reserve speakers is due in the coming hours, but markets appear well conditioned for a mildly hawkish tone. Geopolitical developments, particularly on the Iran front and perhaps articulated during Trump's speech, look more likely to provide the catalyst needed to push exchange rates out of their current holding patterns.

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.