USD/CAD Outlook: Neutral Loonie, Inflation Data and Tariff Risks in Focus

Traders are assessing inflation figures released yesterday. In December, the Consumer Price Index (CPI) fell by 0.2% after a 0.1% increase in November, while the annual rate rose from 2.2% to 2.4%. The core CPI, which excludes fuel and food prices, declined by 0.4% and eased from 2.9% to 2.8% year over year. Canada’s widely watched trimmed and median CPI measures slipped to 2.7% and 2.5%, respectively, with the average marking its lowest level since October 2024. This may support the Bank of Canada’s Governing Council as it meets on January 28 to set the policy rate. Analysts expect the rate to remain at 2.25%, although softer inflation could revive expectations for policy easing later this year.

Meanwhile, after a volatile 2025, Canada is entering 2026 with signs of a moderate but uneven recovery. According to the Canadian Federation of Independent Business (CFIB) quarterly report, GDP growth in Q4 2025 is estimated at 0.6%, while Q1 2026 is expected to accelerate to 3.4%, reflecting a rebound following last year’s downturn and subsequent recovery. Annual growth in 2025 was around 1.7% versus 1.6% in 2024, while inflation remains close to the Bank of Canada’s target: CPI rose to 2.2% at the end of 2025 and is projected to reach 2.3% in early 2026. Private investment, despite a roughly 1.2% annual decline, stabilized toward the end of last year and is expected to rise by 3.5% in Q1, pointing to a cautious improvement in business activity. At the same time, the labor market continues to show structural imbalances: the private-sector job vacancy rate is holding near 2.8% (nearly 388.0K unfilled positions). CFIB experts stress that behind relatively resilient headline indicators lies a troubling trend in the business sector—more firms are exiting the market than new businesses are being created—raising risks to long-term growth and calling for more decisive steps to reduce tax and regulatory burdens, remove internal trade barriers, and strengthen competition.

In turn, the US dollar is trading unevenly. In today’s session, the USD Index (USDX) extended a local decline, hovering near 98.70, well below the 2026 high around 99.30. Over the weekend, President Donald Trump announced new import tariffs targeting eight European countries. According to the White House, if these states do not support an agreement on the “acquisition” of Greenland, they will face a 10.0% tariff on all imports from February 1; if that fails to have an effect, tariffs will be raised by another 25.0% from June 1. This decision carries risks for the dollar, as EU countries are the largest global holders of US debt assets: their combined holdings of US equities and bonds are estimated at about $8.0 trillion out of roughly $30.0 trillion in total. Pressure on the US currency could intensify if European investors opt for asset sales as part of retaliatory measures.

Support and resistance levels

On the daily chart, price is correcting, edging hesitantly toward the support line of an ascending channel with boundaries at 1.4350–1.4040.

Technical indicators maintain a buy signal and are not yet ready to reverse. The EMA range on the Alligator indicator remains stable, with the fast moving averages pulling away from the signal line, while the AO histogram is printing new corrective bars, staying slightly above the zero line.

Support levels: 1.3810, 1.3670.

Resistance levels: 1.3910, 1.4050.

Trading scenarios and USD/CAD outlook

If the pair extends its advance and consolidates above 1.3910, long positions may be considered with a target at 1.4050. Stop-loss: 1.3840. Time horizon: 7 days or longer.

If the corrective decline continues and price consolidates below the 1.3810 support level, short positions may be considered with a target at 1.3670. Stop-loss: 1.3900.