USD/CAD. Analysis and forecasting

[Ben Graham]

Today, on the final trading day of the week, the USD/CAD pair is facing selling pressure, halting its two-day advance amid a number of unfavorable circumstances. Oil prices are once again gaining momentum, recouping part of yesterday's losses against the backdrop of rising concerns ahead of U.S.–Iran talks.

This is strengthening the commodity-linked Canadian dollar, which, together with a moderate weakening of the U.S. dollar, is creating some downward pressure on the pair. Despite disputes over the meeting agenda, the U.S.–Iran talks are still set to take place in Oman amid heightened tensions. White House Press Secretary Karoline Leavitt told the press that diplomacy remains U.S. President Donald Trump's preferred path to resolving the Iranian issue, and that he hopes agreements can be reached. At the same time, Leavitt noted that military options are available to him. Moreover, Trump has openly threatened Iran with military strikes should the talks fail. Such statements maintain geopolitical uncertainty and heighten the risk of escalation into a full-scale conflict that could disrupt oil supplies and trigger short-covering in the oil market.

Meanwhile, the U.S. dollar is losing momentum in its recent rebound from a four-year low, as markets increasingly recognize that the Federal Reserve is likely to cut rates twice more in 2026. These expectations are supported by fresh U.S. data signaling signs of cooling in the labor market. In particular, the Automatic Data Processing (ADP) report on Wednesday showed that private-sector job creation totaled just 22,000 in January, compared with 37,000 previously. In addition, Thursday's Job Openings and Labor Turnover Survey (JOLTS) report showed 6.542 million job openings at the end of December, down from 6.928 million earlier. The U.S. Department of Labor also reported an increase in initial jobless claims to 231,000 for the week ending January 31, up from 209,000 the previous week.

On Thursday, Trump said he would not support Kevin Warsh's candidacy for Fed chair if Warsh were to advocate raising interest rates. This caps enthusiasm among dollar bulls and helps create a favorable backdrop for the Canadian dollar. Market participants now need to focus on the release of Canadian employment data, as well as the preliminary University of Michigan Consumer Sentiment Index with inflation expectations, which will set the tone for the pair's movement today.

From a technical perspective, oscillators on the daily chart are in negative territory, supporting the bears. The pair has also slipped back below the round 1.3700 level, which favors sellers. If prices fail to hold above the 1.3620 level, the decline could accelerate toward the January low near 1.3480. However, if prices manage to climb back above the round 1.3700 level, the first resistance will be at 1.3750.

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