• USD/CAD trades higher, underpinned by a firm US Dollar.
• Thin liquidity due to the US President’s Day keeps price action range-bound.
• Traders await Canada CPI for fresh guidance on the BoC’s monetary policy path.

The Canadian Dollar (CAD) remains on the back foot against the US Dollar (USD) on Monday, with USD/CAD extending its advance for a fourth consecutive day as the Greenback steadies following its recent weakness. At the time of writing, the pair is trading around 1.3628.

Price action could remain choppy in thin liquidity conditions due to the US President’s Day holiday and Canada’s Family Day, with market focus shifting to Canada’s January inflation data due on Tuesday.

Economists expect the monthly Consumer Price Index (CPI) to rise 0.1% in January, after contracting 0.2% in December. On an annual basis, headline CPI is forecast to hold steady at 2.4%, unchanged from the previous month. A firmer-than-expected print could strengthen the case for the Bank of Canada (BoC) to keep interest rates on hold for longer.

At its January meeting, the Bank of Canada said monetary policy remains focused on keeping inflation close to the 2% target. The Governing Council judged that the current policy rate “remains appropriate,” while warning that the Canadian economy continues to face headwinds from elevated trade uncertainty linked to US tariffs.

Meanwhile, firm Oil prices are lending modest support to the Loonie, given Canada’s status as a major crude exporter. West Texas Intermediate (WTI) is trading around $63.25, up nearly 1.0% on the day.

In the United States, near-term Federal Reserve rate-cut expectations have faded after last week’s labor market data showed conditions stabilising. Nonfarm Payrolls rose by 130K, rebounding from 48K previously, while the Unemployment Rate eased to 4.3% from 4.4%.

At the same time, softer-than-expected inflation data has kept hopes alive for policy easing in the second half of the year, with traders still pricing in more than 50 basis points (bps) of rate cuts in 2026. Headline CPI rose 0.2% MoM in January, slowing from 0.3% in December. On an annual basis, inflation eased to 2.4% YoY from 2.7%.

Diminishing expectations of Fed easing have helped stabilise the Greenback. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major peers, is hovering around the 97.00 mark, oscillating within a one-week trading range.

However, structural headwinds such as US President Donald Trump’s aggressive trade policies, repeated criticism of the Federal Reserve, and rising government debt continue to weigh on sentiment, limiting any meaningful recovery in the US Dollar.

Attention now turns to the Federal Open Market Committee (FOMC) meeting minutes on Wednesday, followed by the Core Personal Consumption Expenditures (PCE) Price Index and the advance estimate of fourth-quarter Gross Domestic Product (GDP) on Friday, for further clues on the timing of the next interest rate cut.