USDCAD's ascent is unshaken by fleeting oil recovery

USDCAD has pulled itself up from recent depths and is now trading near 1.36350, having recovered from the lows last seen in October 2024. The primary driver behind the greenback's renewed strength against the loonie is that President Donald Trump tapped Kevin Warsh as the next Federal Reserve (Fed) Chair. His selection has tempered expectations for US aggressive interest rate cuts, positioning the dollar on firmer ground compared to other major currencies.

Compounding this dynamic is a fundamentally lackluster backdrop for the loonie. Recent economic data has painted a picture of stagnation. Gross domestic product (GDP) flatlined in November. Manufacturing activity is now languishing in contraction, while pervasive trade uncertainty is stifling business confidence. With the Bank of Canada (BoC) being in a watchful pause, even a strong employment print this Friday is unlikely to jolt the central bank from its neutral stance.

In the meantime, the oil market keeps making its roller-coaster ride. Prices plunged 5% on February 2, only to stage a sharp recovery and gain traction on February 4 as tensions in the vital Strait of Hormuz escalated. Yet, this geopolitical risk premium is struggling to lift the CAD, as its impact is stifled by the overwhelming reality of a persistent global supply glut.

This week, Canadian jobs data for January may inject short-term volatility to the market. However, CIBC Capital Markets strategists see no trend reversal in the cards, projecting the USDCAD pair to eventually retest 1.3800. 

From a technical perspective, charts are aligning for a potential push higher. The Stochastic Indicator shows the %K line (=64) rising decisively above the %D one (=43), having broken free from oversold territory and preserving room to climb. Back at the ranch, the Chaikin Oscillator is pausing after its recent ascent, thus revealing waning selling pressure. Essentially, the market appears to be gathering liquidity for a new consolidation phase before mounting a challenge to more elevated resistance levels.

Pay attention to the trading plan outlined below:

Buy USDCAD on volatility following the Canadian employment report. Place Take profit at 1.37800. Set Stop loss at 1.34635.

This forecast holds true between February 4 and February 11, 2026.