USD/CAD Hits Two-Week Peak as Loonie Stumbles Near Critical 1.3700 Mark

The USD/CAD pair climbed Friday. Traders watched closely as the currency duo pushed toward the key 1.3700 resistance level, marking its strongest position in two weeks amid mounting pressure on Canada’s struggling dollar.

Canadian retail sales data crushed expectations this week, sending the loonie tumbling against its southern neighbor. Statistics Canada’s January figures showed a sharp decline that caught economists off guard, raising fresh questions about the country’s economic recovery trajectory. The weak numbers basically confirmed what many suspected – Canada’s consumer spending momentum is fading fast. Oil price volatility didn’t help either, with crude futures swinging wildly between $74 and $76 per barrel throughout the trading week.

Not the outcome anyone wanted.

Meanwhile, the U.S. dollar flexed its muscles across multiple fronts. Department of Labor data revealed unemployment claims dropped more than forecast, painting a picture of labor market resilience that’s becoming hard to ignore. The jobless numbers came in at 194,000 versus expectations of 210,000, giving dollar bulls plenty of ammunition for their next push higher.

And traders are paying attention. The 1.3700 level represents more than just a technical barrier – it’s a psychological threshold that could unleash significant buying pressure if breached convincingly.

Forex strategist Mark Chandler from Bannockburn Global Forex said the setup looks “pretty compelling” for further USD strength. He thinks a clean break above 1.3700 could trigger stops and attract momentum players who’ve been waiting on the sidelines.

But oil complicates everything.

West Texas Intermediate crude traded near $75 per barrel this week, down from recent highs that had provided some support for the Canadian currency. Energy exports remain Canada’s economic backbone, so when oil prices wobble, the loonie typically follows suit. Brent crude’s slide to around $74 per barrel added extra weight to the currency’s struggles, with Canadian producers already dealing with tight margins and uncertain demand outlooks.

Bank of Canada Governor Tiff Macklem speaks February 22 at an Ottawa financial conference. His comments will get dissected for any hints about future rate moves, though most analysts expect him to stay cautious given the mixed economic signals. Jane Foley from Rabobank pointed out that Canada’s commodity dependence creates vulnerability that the U.S. economy simply doesn’t face to the same degree. Related coverage: Russia Hits 8 Million Daily Crypto.

The Federal Reserve’s meeting minutes drop February 21. Goldman Sachs analysts are watching for any hawkish language that might signal more aggressive tightening ahead. A tough tone from Fed officials would probably send the dollar even higher against the struggling Canadian currency.

Currency markets hate uncertainty. Right now, there’s plenty of it swirling around both economies, but the U.S. seems better positioned to weather whatever comes next.

Canada’s Consumer Price Index hits February 23, giving traders another data point to chew on. TD Bank economists think inflation numbers could move the needle significantly if they deviate from the 3.2% consensus estimate. The central bank has been fighting to bring price pressures under control, but progress has been uneven and frustrating for policymakers.

Technical traders are split on what happens next. Some see 1.3700 as a launching pad for higher levels, possibly targeting 1.3800 or beyond. Others think the resistance will hold, forcing a pullback toward 1.3600 support where buyers might emerge again.

The energy sector’s performance keeps weighing on Canadian dollar sentiment. Oil producers can’t catch a break lately, with global demand concerns and oversupply fears creating a toxic mix for commodity currencies. When energy stocks struggle, the loonie typically follows, and that relationship hasn’t changed despite efforts to diversify the economy.

Geopolitical tensions add another layer of complexity. Trade relationships between the U.S. and Canada remain solid, but broader global uncertainties create ripple effects that currency traders can’t ignore. Any unexpected developments could trigger sharp moves in either direction for the USD/CAD pair.

Market participants are basically holding their breath. The 1.3700 level has been tested multiple times over the past month, and each failed attempt has left bulls more determined to break through. But bears aren’t giving up either, knowing that a rejection here could spark a meaningful correction. See also: BitGo Stock Plunges as Banks Eye.

Friday’s trading session will probably determine short-term direction. Volume tends to be lighter heading into weekends, but significant moves can still happen if the right catalyst emerges.

For now, momentum favors the U.S. dollar. Economic data has been consistently stronger south of the border, while Canada deals with growth concerns and commodity headwinds that show no signs of easing. The divergence between the two economies continues widening, creating the fundamental backdrop for further USD/CAD strength.

Central bank communications next week could shift the narrative. Both the Fed minutes and Macklem’s speech carry potential to move markets, especially if officials signal policy changes that weren’t fully anticipated by traders.

The 1.3700 barrier remains the key battleground. A decisive break higher would open the door for extended gains, while failure to breach could trigger profit-taking and position adjustments that send the pair back toward recent lows.

Several major Canadian banks have revised their USD/CAD forecasts higher this week. Royal Bank of Canada strategists now see the pair reaching 1.3750 by month-end, citing weakening domestic fundamentals and persistent U.S. economic outperformance. Scotia Capital echoed similar sentiment, warning clients that commodity sector headwinds could persist through Q2.

Cross-border trade data released Thursday showed another concerning trend for Canadian exporters. Manufacturing shipments to the U.S. fell 2.1% in January, the third consecutive monthly decline that’s raising alarm bells about competitiveness issues beyond just currency movements.