The Canadian Dollar (CAD) has held steady against the US Dollar (USD), remaining above the 1.40 mark for the first time in about 10 days. This trend is highlighted in an analysis by Scotiabank’s Shaun Osborne and Eric Theoret.
Government Fiscal Plans
Prime Minister Carney recently addressed the nation, unveiling the government’s fiscal plans. The focus is on reducing spending while increasing investment. The aim is to attract foreign talent and improve the resource sector, especially concerning the US trading relationship.
Canadian Retail Sales are expected to rise by 1.0% in August, bouncing back from a 0.8% drop in July. This aligns with early August data and recent positive surprises. However, predictions from Bank of Canada (BoC) Governor Macklem suggest a possible 1/4-point rate cut next week, which could be the last in this cycle according to swaps pricing.
While the CAD is showing modest strength, short-term movements reveal minor resistance forming around 1.4005/10. Staying below the 1.40 mark may affect USD support levels near 1.3961, impacting the CAD’s short-term rebound potential.
As of October 23, 2025, the Canadian dollar is at a critical juncture against the US dollar, hovering around the 1.4000 level. Traders should be wary of a “buy the rumor, sell the fact” response to the upcoming Bank of Canada meeting. Although a rate cut is expected, the market seems to be ready for it, with overnight index swaps indicating almost a 90% chance of a 25-basis point cut.
Impact of Political Risks
The important factor will not just be the rate cut itself, but also the guidance from Governor Macklem. Recent September inflation data shows that the headline CPI has cooled to 2.9%, which may lead the Bank to suggest this could be the final cut in its easing cycle. This “hawkish cut” could actually strengthen the CAD, surprising traders who expect further weakness.
The government’s fiscal plan and the potential for a non-confidence vote in early November pose significant political risks. We recall the political uncertainty before the 2021 federal election, which increased currency volatility and pushed down the loonie. For this reason, purchasing options to protect against sudden moves in the USD/CAD exchange rate may be a smart move.
From a technical standpoint, the 200-day moving average at 1.3961 is a crucial support level. A strong drop below this level, likely triggered by a hawkish BoC statement, could lead to a further decline towards 1.3800. However, if this support holds, especially in light of rising political tensions, the pair could quickly bounce back above 1.40.
With mixed economic and political signals, we can expect increased volatility. Traders might consider using straddles, which allow for profit from significant price movements in either direction around the 1.40 strike price. This method enables one to benefit from anticipated turbulence without betting on a specific outcome from the BoC meeting or the budget vote.
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