The USD/CAD pair is currently stable above 1.4000, as investors are evaluating the US Federal Reserve’s policy. The US Dollar is gaining strength because the chances for a rate cut in December are decreasing. According to the CME FedWatch Tool, the likelihood of a rate cut has dropped to 69% from 93% just a week ago. Oil prices are also a key factor. West Texas Intermediate (WTI) is trading around $61.00 per barrel, which affects the Canadian Dollar. OPEC+ plans to pause output increases in early 2026, impacting crude prices. Despite challenges for the USD/CAD pair, the strengthening US Dollar benefits from the reduced expectations of a rate cut. The Federal Reserve has set its benchmark rate at 3.75%-4.0%. Fed Chair Jerome Powell has stated that a December rate cut is uncertain. Meanwhile, concerns are rising due to a six-week US government shutdown, which is causing gridlock in Congress. Important factors for the Canadian Dollar include interest rates from the Bank of Canada, oil prices, and the country’s overall economic health. The Bank of Canada’s interest rates significantly affect the CAD. Higher oil prices typically strengthen it, and economic indicators like GDP and employment data are also influential. A strong economy can attract foreign investment and raise interest rates, leading to a stronger currency. As of November 3, 2025, the USD/CAD pair is hovering around the crucial 1.4000 mark. This reflects a strong US Dollar facing the positive effects of rising oil prices on the Canadian Dollar. Traders in derivatives should brace for potential volatility as these factors compete. The US Dollar is gaining ground because the market is less certain about a Federal Reserve rate cut in December. Odds for a third cut have dropped quickly from 93% to 69% in just a week. A similar shift occurred in 2023, often leading to swift changes in the dollar’s value. On the flip side, the Canadian Dollar is being supported by WTI oil remaining above $60 a barrel. This strength comes from OPEC+’s indication that it will halt production increases in early 2026. Recent data from the Energy Information Administration showed an unexpected drop in US crude inventories by 2.1 million barrels, further bolstering prices. However, a significant risk factor is the ongoing US government shutdown, which has lasted six weeks and is stopping the release of key economic data. The last Non-Farm Payrolls report showed a lower-than-expected increase of 150,000 jobs, adding uncertainty to the US economy and potentially leading to sudden market movements related to the shutdown. The Bank of Canada plays a crucial role, and its policy choices might create opportunities. With Canada’s latest Consumer Price Index at a stubborn 3.1%, above the Bank’s 2% target, it seems unlikely that rate cuts will be considered. This trend offers additional support for the Canadian dollar against the US dollar. Given these mixed signals, traders might think about using options to capitalize on a potential breakout. The USD/CAD hasn’t maintained levels above 1.4000 since the significant global risk event in 2020, so a move above could be important. Implied volatility in options pricing may rise in the upcoming weeks. For those anticipating growing concerns about the US economy, buying USD/CAD put options might be a profitable strategy if the price drops below 1.4000. On the other hand, if you believe the Fed will maintain its cautious approach, call options could benefit from a rise. The key will be to monitor any updates from Fed officials or news regarding the government shutdown.

here to set up a live account on VT Markets now