You've probably checked the rate this morning. One US dollar to Canadian dollar is currently hovering around the 1.3884 mark. It’s a number that feels a bit heavy if you’re a Canadian planning a cross-border shopping trip or a business owner trying to source parts from Michigan. Honestly, it’s been a wild start to 2026.
The exchange rate is more than just a ticker on a screen. It is a living, breathing reflection of two massive economies trying to find their footing. People often think the "loonie" just follows oil prices like a shadow. While that's partially true, the reality right now is way more complicated.
Why One US Dollar to Canadian Dollar Still Matters (And Why It’s High)
The gap between the two currencies hasn't been this stubborn in a while. In early January 2026, the USD/CAD pair has stayed firmly above 1.38, even touching 1.39 recently. Why? Basically, it’s a tale of two central banks.
The U.S. Federal Reserve, currently led by Chair Jerome Powell (whose term expires this May), is playing a very cautious game. Even though they’ve started cutting rates—most recently a 25-basis-point drop in December to a range of 3.50% to 3.75%—they aren't in a hurry to slash them to the floor. There is a lot of internal fighting at the Fed. Hawks and doves are practically shouting at each other.
Meanwhile, the Bank of Canada (BoC) is stuck. Governor Tiff Macklem has held the policy rate at 2.25% for months. That’s a huge difference. When U.S. rates are higher than Canadian rates, global investors tend to park their cash in USD to get a better return. This simple "yield gap" keeps the US dollar strong and the Canadian dollar looking a bit scrawny by comparison.
The Oil Factor: It’s Not Just About the Price
We used to say: "As oil goes, so goes the loonie."
That’s kinda changing.
Oil is still a big deal, but the type of oil is the new story.
WTI crude is currently stuck in the mid-$50s per barrel. That’s about 20% lower than where it sat this time last year. Normally, that would crush the Canadian dollar. However, something weird happened in early January. U.S. forces carried out a surprise operation in Caracas, detaining the Venezuelan president. Now, there’s talk of the U.S. taking administrative control over Venezuelan oil assets.
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Why should a Canadian care? Because Venezuela produces heavy, sour crude—the exact same kind of stuff that comes out of the Alberta oil sands. If the U.S. Gulf Coast refineries can suddenly get cheap heavy oil from Venezuela again, they might not need as much Canadian crude. This "heavy crude" competition is a massive invisible weight on the Canadian dollar right now.
What Most People Get Wrong About 1.38
It's easy to look at a 1.38 exchange rate and think Canada is "losing."
It’s not that simple.
A weaker Canadian dollar is actually a secret weapon for some.
- Manufacturing: Factories in Ontario and Quebec love a 1.38 rate. It makes their car parts and machines cheaper for Americans to buy.
- Tourism: If you're an American, your trip to Banff or Toronto is essentially 30% off right now.
- The Downside: If you’re a Canadian buying an iPhone or a bag of Florida oranges, you’re feeling the sting. Inflation in Canada is sitting around 2.2%, but "imported inflation" from the expensive U.S. dollar is making the grocery bill feel much higher.
Scotiabank Economics actually expects the Bank of Canada to eventually hike rates later in 2026—maybe by 50 basis points. They think the loonie could appreciate if the Fed keeps cutting and Canada holds steady. But that’s a big "if."
The 2026 Trade Reality
We can't ignore the elephant in the room: CUSMA (the trade agreement between the US, Canada, and Mexico) is up for review. The current U.S. administration has been very vocal about "tax and deregulate." There is a permanent reduction in Canadian GDP—estimated at about 1.5%—just because of the uncertainty around these trade talks.
When traders are scared about trade, they buy the US dollar. It’s the world’s "safe haven." When things get dicey, people run to the greenback like it’s a storm cellar.
What You Should Actually Do Now
If you're looking at one US dollar to Canadian dollar and wondering how to play it, here is the expert take on the next few months.
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First, don't expect a massive drop back to 1.30 anytime soon. The fundamental gap in interest rates between the two countries is too wide. Most analysts, including those at RBC and BMO, see the loonie remaining under pressure as long as oil stays below $60 and the Fed stays above 3.5%.
Actionable Insights for the Week:
- Lock in Fixed Rates if You Can: If you’re a business with USD expenses, don't "wait for a better rate." The 1.39 level is a real possibility before it gets better.
- Watch the "Dot Plot": Keep an eye on the Fed's next meeting on January 28. If they signal fewer cuts for the rest of 2026, the USD will spike again.
- Hedge Your Bets: For those traveling or buying property, consider "dollar-cost averaging" your currency exchange. Buy a little bit every few weeks rather than dumping a huge lump sum at today's rate.
- Monitor the Heavy Crude Spread: Watch the price of Western Canadian Select (WCS) relative to WTI. If the gap widens because of Venezuelan oil, the loonie is going to have a very rough spring.
The reality of 2026 is that the Canadian dollar is fighting an uphill battle against a resilient U.S. economy and a shifting global energy map. Stay nimble, watch the central bank dissents, and don't bank on a "cheap" US dollar returning this year.