USD/CAD showed slight losses, staying near 1.3990 during Asia’s Thursday session. The Canadian Dollar (CAD) strengthened as crude oil prices rose, with traders looking forward to the Canadian Retail Sales report for August.
Crude oil prices reached a two-week high following US sanctions on Russian oil companies, which helped boost the CAD. Canada, a major oil exporter to the US, usually sees the CAD gain when oil prices rise.
Canadian-US Economic Relations
Canadian Prime Minister Mark Carney hinted that the strong economic ties between Canada and the US might be changing. Meanwhile, traders remained aware of ongoing trade tensions between the two countries.
US President Donald Trump’s refusal to engage with Democratic lawmakers during the government shutdown has delayed important US economic data releases. The Federal Reserve (Fed) is likely to cut interest rates by 25 basis points in both October and December.
Fed funds futures show a 97% chance of a rate cut, which could affect the USD’s performance against the CAD. US traders are looking for insights from Canada’s Retail Sales data, which is expected to show a 1.0% increase in August and a 1.2% rise excluding auto sales.
Key factors influencing the CAD include the Bank of Canada (BoC), oil prices, the economic climate, inflation, and trade balance. Positive economic news and rising oil prices typically strengthen the CAD.
Drivers of the USD/CAD Market
USD/CAD is battling around the 1.4000 mark, but the factors at play have changed since the previous government shutdowns during the Trump administration. The main influences now are the different approaches of the Bank of Canada and the Federal Reserve. This policy difference, along with energy market fluctuations, will likely guide the currency pair in the upcoming weeks.
The CAD is supported by rising oil prices, with WTI crude recently exceeding $88 per barrel, a high not seen in two months. This strength is backed by the Bank of Canada, which kept its interest rate at 4.25% this month, signaling their concerns about inflation.
The outlook for the US dollar has changed significantly from earlier expectations of rate cuts. Recent US inflation data for September 2025 showed a surprisingly high rate of 3.4%, dampening dovish expectations. As a result, futures markets suggest a very low chance of a Fed rate cut before mid-2026.
Although Canada’s economic growth showed signs of slowing to just 0.2% in August, the BoC maintains a strict policy compared to a Fed that may have reached its peak. This divergence could allow the CAD to strengthen against the USD further. Derivative traders might consider strategies, like buying CAD call options, to benefit from this potential trend while managing risk.
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