The USD/CAD pair is holding steady below 1.4000 as the US Dollar stabilizes before the upcoming US inflation data. In Canada, retail sales went up by 1.0% in August, but early figures for September show a 0.7% decrease, suggesting a slowdown. After earlier declines, USD/CAD has risen slightly, trading around 1.3994. The US Dollar is holding steady as the US Dollar Index fell to about 99.00 after peaking at 99.14 during the session, affected by cautious market sentiment and rising US Treasury yields.

Canadian And Global Market Influences

In Canada, retail sales grew by 1.0% month-on-month in August, helped by auto sales and merchandise, though September estimates predict a drop. Oil prices are rebounding but provide limited support for the Canadian Dollar. WTI crude has risen more than 3.5% to $61.50 per barrel due to new US sanctions on Russian energy companies. Chinese oil firms have stopped buying Russian crude due to fears of Western sanctions, leading to expectations of tighter oil supply. Kuwait’s Oil Minister believes prices will rise and notes a shift in demand towards the Gulf, with OPEC prepared to adjust output if necessary. Additionally, tensions over US-China trade talks and the possibility of a government shutdown are affecting market sentiment, with attention turning to the upcoming CPI data amid expectations of a Fed rate cut. Hindsight shows the market was right to anticipate a 25-basis point cut in the October 29-30 Federal Reserve meeting. However, recent US Consumer Price Index (CPI) data for September demonstrates that headline inflation remains high at 3.1% year-over-year. This suggests that the planned cut may be an isolated event. In the weeks ahead, there could be a more hawkish Fed stance, which would boost the US Dollar.

Canadian Dollar Outlook And Trading Strategies

The outlook for the Canadian Dollar is uncertain as the Bank of Canada keeps its policy rate unchanged. Canada’s inflation has cooled to 2.5%, and the latest GDP data shows growth slowing to just 0.8% on an annualized basis in the third quarter. This divergence in policy is putting upward pressure on the USD/CAD pair, which has risen from below 1.4000 to about 1.4150 today. Support for the Canadian Dollar from oil prices has also weakened. West Texas Intermediate (WTI) crude is down from over $61 and is now trading near $58 a barrel. Initial concerns over Russian sanctions have faded, and OPEC+ is signaling a willingness to maintain market stability, limiting price increases for crude oil. Given these factors, traders might consider strategies that take advantage of further USD/CAD strength or increased volatility. For example, buying call options on USD/CAD with strike prices around 1.4250 or 1.4300 in the coming weeks could be profitable if the US Dollar strengthens. Alternatively, for those anticipating sharp movements around upcoming data releases, a long straddle could allow for capturing significant price changes in either direction. Create your live VT Markets account and start trading now.

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