The Canadian dollar drifted lower on Thursday as a firmer US dollar and shifting rate expectations kept the loonie under pressure, even as oil stayed in the conversation. It was the kind of move that looks small on a headline chart but matters in real life: import costs, travel budgets, and cross-border pricing all begin to change when CAD spends day after day on the back foot.
Traders described the tone as “strong dollar first, everything else second.” The US dollar pushed higher across major currencies, and that broad strength tends to spill into USD/CAD quickly. When the greenback rises as a package, it often takes a clear catalyst to stop it — and on Feb. 5, the catalysts were mixed rather than decisive.
Market snapshot
| What traders watched | What it did | Why it matters for CAD |
|---|---|---|
| USD/CAD | Held around the mid-1.36s to high-1.36s range | A higher USD/CAD means a weaker loonie and more US-priced inflation pressure. |
| Oil | WTI around the low-$60s per barrel | Oil supports Canada’s trade flows, but CAD doesn’t always rally if the US dollar is dominating. |
| US dollar index tone | Firm, with a second-day lift | Broad USD strength can overwhelm commodity support and pull USD/CAD higher. |
| Rate expectations | Investors stayed focused on relative paths | If US rates are seen staying higher, it widens the gap that tends to favour the greenback over CAD. |
The loonie’s story on Feb. 5 was less about panic and more about gravity. A strengthening US dollar can act like a tide: it lifts USD across the board and forces other currencies to justify every inch of strength. For the Canadian dollar, that justification usually comes from two places — oil and interest rates — and both were sending “not yet” signals.
Start with oil. Crude dipped more than 2% in the latest leg of trading, with Brent near the upper-$60s and WTI near the mid-$60s. That matters because energy exports are a core source of Canada’s foreign earnings. But currency traders have also learned a hard lesson over the past few years: oil can be supportive without being decisive, especially when the US dollar is having one of those sessions where it wins simply by being the default.
The second driver was rates — and not just where they are today, but where the market believes they are headed. The Bank of Canada recently held its policy rate at 2.25%, and every signal traders think they hear about the next move can tilt CAD. The simple rule is this: when markets believe US rates will stay higher for longer relative to Canada, the greenback usually gains the advantage and USD/CAD tends to creep upward.
That’s why CAD can weaken even on days when nothing “bad” happens. The loonie doesn’t need a shock to slide; it can slip on a quiet recalibration. When positioning shifts, moves can look technical from the outside but feel very real to anyone converting money, paying a US invoice, or planning a cross-border trip.
Previous CAD levels traders referenced
- Earlier this week, USD/CAD traded around the mid-1.36s, with the loonie briefly looking steadier as oil bounced.
- In the past week, USD/CAD ranged roughly from the high-1.34s to the high-1.36s, a reminder that “stable” can still mean meaningful day-to-day swings.
- A key reference point for many desks was the late-January area in the high-1.34s, which some treated as a near-term floor before the dollar’s latest push.
For Canadian households, the practical impact shows up fastest in US-dollar pricing. A softer loonie can nudge up the Canadian cost of imported goods and US travel, particularly when the currency weakness is paired with higher shipping or product prices. For Canadian exporters, the relationship can flip: revenues earned in US dollars convert back into more Canadian dollars, which can help earnings — one reason equity investors sometimes view a weaker CAD as a mixed blessing.
There’s also a market-psychology layer. CAD is often called a “commodity currency,” but it is also a confidence currency. When investors are optimistic about global growth, commodity-linked currencies usually do better. When investors retreat to safety, the greenback tends to benefit. On Feb. 5, the market felt more like a safety tilt than a growth sprint — not a full risk-off wave, but enough to keep CAD on the defensive.
What would change the tone? For the loonie, it usually takes one of two shifts: oil finds a convincing bid that lasts more than a few hours, or markets start to believe Canada’s rate path will be less dovish than expected. Any upside surprise in Canadian inflation or jobs can do that. Conversely, if the US dollar remains broadly strong and oil stays choppy, CAD can continue to leak lower in small steps.
If you’ve been watching Canadian markets more broadly, it’s worth reading how currency moves can show up in equities and sector leadership as well. Here’s a recent TSX market recap that breaks down how late-day flows can shift sentiment across Canada-linked assets.
The Bank of Canada’s latest rate decision also remains a central reference point for FX traders trying to map what comes next. You can read the official statement directly from the Bank of Canada, which explains the policy rate hold and the factors policymakers highlighted.
For now, the headline is simple: a stronger US dollar is still the main weight on the loonie, and CAD is having to fight for every bounce. If oil firms up and rate expectations turn more CAD-friendly, the loonie can stabilize quickly — but until then, the path of least resistance remains slightly higher USD/CAD and a softer Canadian dollar.
