USD/CAD: Sideways Range with Tariff Risks – Rabobank

Why It Matters

A stable yet volatile‑rich USD/CAD range shapes hedging costs and pricing for exporters, investors, and policymakers across North America.

Key Takeaways

• USD/CAD range forecast: 1.36‑1.41 through 2026.
• Tariff premium keeps CAD weaker despite USD softness.
• USMCA review adds geopolitical uncertainty to FX market.
• Implied volatility expected to rise, still lowest G10 cross.
• Oil price moves less predictive for CAD this year.

Pulse Analysis

The USD/CAD pair is entering a prolonged consolidation phase, with Rabobank anchoring its forecast between 1.36 and 1.41 for the next twelve months. This band reflects a tug‑of‑war between a softer greenback and a tariff‑driven drag on the Canadian dollar. The upcoming USMCA renegotiation, slated for July 2026, injects additional uncertainty, as any shift in trade rules could instantly reshape cross‑border cash flows and currency demand. Traders therefore should monitor policy signals as much as price action.

Volatility, traditionally muted for the CAD, is expected to rise modestly as market participants price in the heightened geopolitical risk. Despite this uptick, the Canadian dollar remains the least volatile G10 cross, offering a relative safe‑haven in an otherwise jittery FX landscape. The “tariff premium”—a price cushion stemming from lingering trade barriers—continues to suppress CAD strength, while a narrowing US‑Canada rate differential tempers the dollar’s upside. This dynamic creates a unique environment where rate differentials, rather than commodity swings, dominate short‑term moves.

For corporates and investors, the sideways outlook translates into more predictable hedging budgets but also demands vigilance. The weakened correlation with oil, a historic driver of CAD performance, means that energy price shocks will have a muted impact on the pair. Consequently, risk managers should prioritize monitoring trade policy developments and rate‑curve shifts over commodity trends. As the USMCA review approaches, any deviation from the status quo could trigger a breakout, making the 1.36‑1.41 corridor a critical reference point for strategic positioning in 2026.

USD/CAD: Sideways range with tariff risks – Rabobank

02/13/2026 11:58:41 GMT · FXStreet Insights Team

Rabobank’s Molly Schwartz and Christian Lawrence expect USD/CAD to trade broadly sideways through 2026 as US‑Canada trade tensions and the USMCA review risks offset a weaker dollar. They see the pair constrained in a 1.36 – 1.41 band, with a narrower US‑Canada rate differential and rising implied volatility, but still view the Canadian dollar as the lowest‑volatility G10 USD cross.

Range‑bound outlook under trade uncertainty

“USD/CAD has been trading mostly sideways in February thus far, even as US‑Canada headlines dominate the newsfeed on an almost daily basis. We see 2026 fraught with geopolitical tension and trade uncertainty, but see CAD balanced out by a weaker USD. We foresee further sideways trading for USD/CAD in the year ahead, bounded by 1.36‑1.41, though it will be a bumpy ride, especially leading into the USMCA review.”

“We expect USD/CAD to remain range‑bound between 1.37‑1.40 as competing pressures balance out. The continued ‘tariff premium’ will contribute to a weaker CAD, but the narrowing US‑CA rate differential subdues USD strength.”

“USD/CAD has started to move in correlation with our selected assets again, aligning with the US‑CA 2‑year rate differential as well as having an inverse relationship with oil. The latter being a reflection of our well‑flagged view that oil prices are only a key driver of CAD during periods when oil prices move sharply and quickly. However, given the heightened uncertainty surrounding US relations and trade, we would caution getting too comfortable with these re‑emerging relationships.”

“We are not anticipating a swift return to the low‑volatility environment of December 2025. Rather we expect the opposite. While vols have cooled from recent highs driven by arctic anxieties, we expect the US‑Canada relationship to grow increasingly unstable, especially as we approach the official USMCA review on July 1 — four and a half months away.”

“We see USD/CAD continuing to trade sideways in the range 1.36‑1.41 in the year ahead, as USD/CAD is yanked up and down by US‑Canadian tensions, non‑coincident rate paths, and sticky trade uncertainty.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)