US Dollar Slips Near Four-Year Lows as DXY Hovers Around 96 and USD/CAD Holds Near 1.35

The US dollar is ending January on uneasy footing, with the US Dollar Index, known as DXY, trading around 96.2 in Thursday, January 29, 2026 (ET) action after briefly touching a four-year low near 95.6 earlier this week. In North America, the Canadian dollar has been relatively steady: 1 Canadian dollar is about 0.738 US dollars, implying USD/CAD near 1.35.

The price action is telling a bigger story than “strong vs weak.” Traders are repricing the dollar around politics, policy credibility, and the next phase of interest-rate decisions on both sides of the border.

Where the US dollar stands today: DXY and Canadian dollar to USD

By late morning Thursday (ET), DXY was hovering in the 96.1 to 96.4 zone, a level that underscores how far the dollar has fallen from last year’s highs. DXY is a broad measure of the dollar against a basket of major currencies and is heavily influenced by moves in Europe and Japan.

For the Canadian dollar, the headline numbers are tighter:

• CAD to USD: about 0.738

• USD to CAD: about 1.35

That matters because CAD can look “stable” even when DXY is sliding, especially when Canada-specific forces like energy prices, trade headlines, and the Bank of Canada’s tone are offsetting broader dollar weakness.

Why the dollar is under pressure: interest rates plus credibility

The Federal Reserve held its benchmark rate range at 3.50% to 3.75% on Wednesday, January 28, 2026 (ET), signaling patience after a run of rate cuts in late 2025. That “pause” doesn’t automatically weaken the dollar. What’s weighing on sentiment is the combination of:

• Uncertainty around the future rate path (markets debating how quickly cuts resume, if at all)

• Tariff and fiscal-policy unpredictability, which changes how global investors price US assets

• Institutional credibility risk, a theme that has become more market-moving than it used to be

In the last 48 hours, even supportive messaging from senior US economic officials about a “strong dollar policy” has done more to slow the slide than to reverse it. The market’s reaction suggests investors want clarity on the rules of the game, not just reassurance.

Canadian dollar to USD: why the loonie is holding up

Canada’s central bank held its policy rate at 2.25% on Wednesday, January 28, 2026 (ET), and emphasized uncertainty tied to trade conditions and the broader global outlook. That steady-as-she-goes stance can support the currency by reducing fear of an abrupt policy pivot.

At the same time, the loonie’s “not collapsing” doesn’t mean Canada is insulated. It means the market is balancing several offsetting forces:

• Trade friction risk can weigh on Canada if tariff threats expand or become more concrete

• Energy and commodity sensitivity can support Canada on good commodity days and punish it fast when prices slip

• Relative rates still matter: if investors conclude the Fed will stay higher for longer than the Bank of Canada, USD/CAD can grind upward again

The net result today: a Canadian dollar that’s firm enough to keep USD/CAD near 1.35, but not strong enough to feel like a clear trend.

Behind the headline: who wins and who loses from a softer dollar

A lower dollar reshuffles incentives quickly:

• US exporters benefit because their goods become more price-competitive abroad

• US consumers face higher imported-goods costs over time, which can reheat inflation pressure at the margins

• Canadian exporters to the US can feel squeezed if the loonie strengthens too far, but today’s levels aren’t extreme

• Cross-border supply chains hate volatility more than they hate any single level; uncertainty pushes companies to delay investment and build defensive inventory

Second-order effects show up in places most people don’t connect to FX: corporate pricing decisions, tourism flows, and the “risk premium” investors demand to hold long-dated assets.

What traders are watching next: the economic calendar and the “headline trap”

A big share of short-term FX moves now come from calendar catalysts and headline shocks, not just slow-moving fundamentals. Many retail and professional traders organize around widely used economic calendars and trading forums that flag:

• US inflation readings and consumer-spending data

• Labor-market updates due in early February

• Central-bank speeches that hint at the timing of the next cut

• Any concrete tariff proposals, timelines, or exemptions that change the real economic impact

The trap is that currency markets often move first on tone and positioning, then move again when details arrive.

What happens next: 5 realistic scenarios with triggers

1. DXY stabilizes near 96
   Trigger: calmer trade headlines and fewer credibility shocks, letting rate differentials dominate again.

2. Dollar resumes sliding toward fresh lows
   Trigger: widening political pressure on monetary policy or renewed tariff escalation that dents global confidence.

3. USD/CAD drifts higher despite a weak DXY
   Trigger: Canada-specific downside surprises (growth, trade, or commodity weakness) outweigh the broader dollar softness.

4. USD/CAD drops below 1.34
   Trigger: stronger Canada data, firmer commodities, or a shift toward earlier Fed easing expectations.

5. Volatility spikes without a clear trend
   Trigger: a week of mixed data plus conflicting central-bank messaging, creating whipsaw price action.

Right now, the market is pricing a simple reality: the dollar is no longer trading purely on interest rates. It’s trading on whether investors believe the policy framework is steady enough to trust—especially as the next wave of economic data and trade headlines hits.