Canadian Dollar Steady Amid Trade Risks and Oil Price Support
OTTAWA, January 27, 2026 – The Canadian dollar held its ground on Tuesday, with the USD/CAD exchange rate unchanged at 1.3707. The loonie has weakened slightly by 0.11% over the past month but remains significantly stronger, up 4.82%, compared to its value one year ago. The currency finds support from firmer crude oil prices but faces a ceiling from renewed geopolitical and trade uncertainty, notably fresh tariff threats from the United States.
Recent Performance and Context
The Canadian dollar recently touched a four-week high, nearing 1.376 against the US dollar, buoyed by a combination of supportive factors. Energy markets provided a key pillar, with crude oil prices firming due to supply disruptions and improved North American balances, which enhance Canada’s terms of trade as a major crude supplier to the US. Domestically, inflation data has argued against immediate monetary policy easing. Headline Consumer Price Index (CPI) inflation was 2.4% in December 2025, remaining above the Bank of Canada’s 2% target, reinforcing expectations that the central bank will maintain its key policy rate at 2.25% for the foreseeable future.
Key Economic Drivers and Indicators
The loonie’s trajectory is being shaped by competing forces. On one side, resilient energy prices and a steady domestic policy outlook offer support. On the other, significant headwinds persist. The most prominent is the threat to the trade relationship with the United States. President Donald Trump has recently threatened to impose 100% tariffs on Canadian goods should Ottawa pursue a trade deal with China, injecting considerable uncertainty into the economic outlook. Furthermore, the Bank of Canada has signalled that its current policy rate is appropriate to support the economy through a period of structural adjustment caused by existing trade tensions, suggesting a prolonged pause in its easing cycle.
| Indicator | Value (Latest) | Context & Trend |
|---|---|---|
| USD/CAD Exchange Rate | 1.3707 | Unchanged on the day; +4.82% year-over-year. |
| Bank of Canada Policy Rate | 2.25% | Held steady since October 2025 cut; seen as “about right” for current conditions. |
| Canada Inflation (CPI YoY) | 2.4% (Dec 2025) | Above 2% target; core measures have cooled, limiting urgency for BoC to cut. |
| U.S. Federal Funds Rate | 3.75% – 4.00% | Higher than Canada’s rate, supporting the US dollar. |
| Canada Unemployment Rate | 6.8% (Dec 2025) | Improved from summer highs but reflects economic slack. |
Outlook and Forecasts
Analysts and economic models present a cautious outlook for the loonie. Trading Economics global macro models project the Canadian dollar to trade at 1.37 per US dollar by the end of the first quarter of 2026, with an expectation of strengthening to 1.35 in twelve months’ time. The path forward is heavily contingent on the evolution of US-Canada trade relations, particularly the upcoming review of the Canada-United States-Mexico Agreement (CUSMA). Most economists expect the Bank of Canada to remain on hold throughout 2026, balancing upside inflation risks from trade disruptions against downside risks from modest domestic demand.
Frequently Asked Questions
What is the Canadian dollar worth in US dollars today?
As of January 27, 2026, one Canadian dollar is worth approximately 0.7296 US dollars (or conversely, one US dollar buys about 1.3707 Canadian dollars).
Why is the Canadian dollar called the “loonie”?
The nickname “loonie” originates from the image of a common loon, a bird, featured on the one-dollar Canadian coin introduced in 1987. The term is now used colloquially to refer to the Canadian dollar in general.
How do US tariff threats affect the Canadian dollar?
Threats of increased US tariffs on Canadian goods create uncertainty for Canada’s export-dependent economy. This typically leads to a risk-off sentiment among investors, which can cap gains or cause depreciation in the Canadian dollar’s value, as seen with recent threats regarding a potential Canada-China trade deal.
What is the Bank of Canada’s next move likely to be?
The Bank of Canada has indicated that its current policy interest rate of 2.25% is appropriate given the economic outlook. With inflation slightly above target and significant trade-related uncertainty, the central bank is widely expected to hold rates steady for an extended period. The next move is more likely to be a cut than a hike, but not imminent.
Does a stronger or weaker Canadian dollar benefit the economy?
The impact depends on the sector. A weaker Canadian dollar (a higher USD/CAD rate) makes Canadian exports cheaper and more competitive internationally, benefiting exporters. However, it also makes imports more expensive for Canadian consumers and businesses, which can feed into inflation. A stronger dollar has the opposite effects, curbing inflation but making exports less competitive.