A stronger US dollar coupled with higher oil prices has caused the USD/CAD exchange rate to enter a range-bound trading pattern.
2026-01-14 13:28:04
The US dollar continued its upward trend against the Canadian dollar (USD/CAD) during Wednesday's Asian trading session, trading around 1.3900, marking its second consecutive day of strength.
The dollar was supported mainly by the latest U.S. inflation data, which was generally in line with market expectations and reinforced the market's view that the Federal Reserve would hold rates steady this month.
Data shows that the U.S. Consumer Price Index (CPI) rose 0.3% month-on-month in December 2025, in line with market expectations; the year-on-year increase remained at 2.7%, also in line with expectations. The core CPI, excluding food and energy prices, rose 0.2% month-on-month, lower than market expectations, while the year-on-year increase was 2.6%, remaining at a four-year low.
This combination suggests that inflationary pressures are easing moderately, but not enough to prompt a significant shift in policy stance. It is worth noting that despite the cooling inflation, the US labor market continues to demonstrate strong resilience.
The previously released non-farm payroll data exceeded expectations, the unemployment rate fell, and the four-week moving average of ADP employment data remained solid, all of which reinforced the market's judgment that the US economic fundamentals are relatively strong, providing continued support for the US dollar.
However, the upside potential of USD/CAD may be limited by the Canadian dollar. As a typical commodity currency, the Canadian dollar is often significantly affected by oil price fluctuations. Currently, West Texas Intermediate (WTI) crude oil prices are hovering around $60.70 per barrel, near a two-month high, providing some support for the Canadian dollar.
The rise in oil prices is mainly driven by geopolitical tensions. Recently, the United States suspended contact with Iran and publicly expressed support for local protesters, raising market concerns about an escalation of the situation. The ongoing instability in Iran, coupled with the risk of potential external intervention, threatens its approximately 3.3 million barrels per day of crude oil production.
Meanwhile, the United States warned that countries continuing to do business with Iran could face new 25% tariffs, exacerbating market concerns about disruptions to crude oil supplies and thus pushing up oil prices.
From a daily chart perspective, USD/CAD remains within an upward channel, with the price holding above major moving averages, indicating a bullish medium-term trend. The recent price rebound and renewed approach to the 1.3900 level suggests that bullish momentum has not completely dissipated.
In terms of technical indicators, the daily RSI is in the neutral to strong zone and has not yet entered a clearly overbought state, which means that the exchange rate still has some room for upward movement, but the momentum is not extreme.
If the RSI rises further, short-term volatility may increase accordingly. At key price levels, the 1.3920-1.3950 range constitutes a temporary resistance level; a decisive break above this level could allow the exchange rate to test previous highs.
Support levels to watch are in the 1.3820-1.3850 area, which also coincides with a cluster of short-term moving averages. A break below this level could lead to a period of consolidation at higher levels or even a slight pullback. Overall, the daily technical chart shows a bullish bias, but the upward momentum may slow, with a more likely scenario of a gradual, sideways rise.
Editor's Note:
The current strength of USD/CAD is primarily driven by the relatively solid fundamentals of the US dollar, with expectations that the Federal Reserve will maintain interest rates unchanged in the short term providing clear support for the dollar. However, at the same time, high oil prices are providing a floor for the Canadian dollar, weakening the unilateral upward momentum of USD/CAD.
Given the coexistence of a strong US dollar and bullish factors for crude oil, USD/CAD is more likely to maintain a high-level range-bound trading pattern, and a directional breakout will require clearer changes in US inflation and monetary policy expectations.
The dollar was supported mainly by the latest U.S. inflation data, which was generally in line with market expectations and reinforced the market's view that the Federal Reserve would hold rates steady this month.
Data shows that the U.S. Consumer Price Index (CPI) rose 0.3% month-on-month in December 2025, in line with market expectations; the year-on-year increase remained at 2.7%, also in line with expectations. The core CPI, excluding food and energy prices, rose 0.2% month-on-month, lower than market expectations, while the year-on-year increase was 2.6%, remaining at a four-year low.
This combination suggests that inflationary pressures are easing moderately, but not enough to prompt a significant shift in policy stance. It is worth noting that despite the cooling inflation, the US labor market continues to demonstrate strong resilience.
The previously released non-farm payroll data exceeded expectations, the unemployment rate fell, and the four-week moving average of ADP employment data remained solid, all of which reinforced the market's judgment that the US economic fundamentals are relatively strong, providing continued support for the US dollar.
However, the upside potential of USD/CAD may be limited by the Canadian dollar. As a typical commodity currency, the Canadian dollar is often significantly affected by oil price fluctuations. Currently, West Texas Intermediate (WTI) crude oil prices are hovering around $60.70 per barrel, near a two-month high, providing some support for the Canadian dollar.
The rise in oil prices is mainly driven by geopolitical tensions. Recently, the United States suspended contact with Iran and publicly expressed support for local protesters, raising market concerns about an escalation of the situation. The ongoing instability in Iran, coupled with the risk of potential external intervention, threatens its approximately 3.3 million barrels per day of crude oil production.
Meanwhile, the United States warned that countries continuing to do business with Iran could face new 25% tariffs, exacerbating market concerns about disruptions to crude oil supplies and thus pushing up oil prices.
From a daily chart perspective, USD/CAD remains within an upward channel, with the price holding above major moving averages, indicating a bullish medium-term trend. The recent price rebound and renewed approach to the 1.3900 level suggests that bullish momentum has not completely dissipated.
In terms of technical indicators, the daily RSI is in the neutral to strong zone and has not yet entered a clearly overbought state, which means that the exchange rate still has some room for upward movement, but the momentum is not extreme.
If the RSI rises further, short-term volatility may increase accordingly. At key price levels, the 1.3920-1.3950 range constitutes a temporary resistance level; a decisive break above this level could allow the exchange rate to test previous highs.
Support levels to watch are in the 1.3820-1.3850 area, which also coincides with a cluster of short-term moving averages. A break below this level could lead to a period of consolidation at higher levels or even a slight pullback. Overall, the daily technical chart shows a bullish bias, but the upward momentum may slow, with a more likely scenario of a gradual, sideways rise.
Editor's Note:
The current strength of USD/CAD is primarily driven by the relatively solid fundamentals of the US dollar, with expectations that the Federal Reserve will maintain interest rates unchanged in the short term providing clear support for the dollar. However, at the same time, high oil prices are providing a floor for the Canadian dollar, weakening the unilateral upward momentum of USD/CAD.
Given the coexistence of a strong US dollar and bullish factors for crude oil, USD/CAD is more likely to maintain a high-level range-bound trading pattern, and a directional breakout will require clearer changes in US inflation and monetary policy expectations.
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