USD/CAD dropped to about 1.4020 during Friday’s Asian trading session, influenced by rising oil prices and concerns about the US economy. Canada’s status as the top crude exporter to the US helped strengthen the CAD. WTI oil prices climbed to $59.50, up more than 1.5%, after a drone strike in Ukraine hit a Russian oil depot, causing damage to three apartments, an oil facility, and various coastal structures.

Concerns About the US Economy

The USD/CAD exchange rate also faced pressure due to US economic worries, even after the government shut down ended. Kevin Hassett raised caution about potential gaps in October’s data, as some agencies were unable to collect information. On the other hand, the US dollar might gain strength from cautious comments from Federal Reserve officials, which lowered the chances of a December rate cut. The CME FedWatch Tool shows nearly a 50% chance of a 25-basis-point cut this December, down from 69% earlier. St. Louis Fed President Alberto Musalem advised caution, noting that there is limited ability to ease. Minneapolis Fed President Neel Kashkari emphasized that inflation remains high at 3%. Early October reports suggest a cooling labor market and declining consumer confidence in the US. As we approach mid-November 2025, USD/CAD struggles to stay below the 1.4050 resistance level. The Canadian dollar benefits from high oil prices, especially considering Canada’s role as a major crude supplier to the US. This situation indicates that any strength in the US dollar may be limited against the loonie.

Effect on USD/CAD Trading Strategies

West Texas Intermediate crude is a key factor in pricing, currently around $82 a barrel. This strength comes from ongoing geopolitical tensions, including recent drone strikes in Ukraine that targeted Russian oil facilities. For derivatives traders, the persistent rise in oil prices supports strategies favoring a stronger Canadian dollar. Conversely, the US dollar faces challenges amid mixed economic signals. The latest jobs report for October showed a cooling labor market, while recent CPI data revealed that core inflation remains stubbornly above 3%. This confusion complicates the Federal Reserve’s plans, making significant gains in USD/CAD difficult. The Fed stated it requires evidence of a stable return to 2% inflation before making any policy changes. At the last FOMC meeting, the narrative of “higher for longer” was reinforced. The CME FedWatch Tool now indicates that the market is hardly expecting a 25-basis-point rate cut before the second quarter of 2026, leading to a cautious outlook for the US dollar. Given this climate, selling call options on USD/CAD with a strike price above 1.4050 may be a sound strategy in the weeks ahead. The strong resistance at this level, along with supportive oil prices for the CAD, suggests a ceiling that could hold. Traders will be watching closely for any changes in Fed commentary or significant shifts in the energy market. Historically, the 1.4000 level has been an important psychological level for this pair, particularly during uncertain times, such as the 2020 global shutdown. With the current mixed forces, establishing option strangles could also be wise for those anticipating a breakout from this tight range. This strategy would allow traders to profit from volatility spikes, whether the pair moves sharply up or down. Create your live VT Markets account and start trading now.

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