USD/CAD is close to 1.3800 as traders stay cautious, awaiting the US Consumer Price Index (CPI) report. With inflation still high, US Federal Reserve Governor Christopher Waller says that policymakers can afford to hold off on easing their policies. The Canadian Dollar is under pressure from falling oil prices, even though geopolitical tensions remain high. During the Asian trading hours on Thursday, USD/CAD was around 1.3790 after some earlier gains. The market’s careful approach is based on the upcoming US CPI report, which could provide further insights into inflation. The CME FedWatch tool shows a 75.6% chance of interest rates staying the same at the Fed’s January meeting, up from about 74% last week.

Oil Prices and Currency Movement

As oil prices fall, the Canadian Dollar struggles, with West Texas Intermediate oil trading near $56.00 per barrel. Even though prices are dropping, geopolitical tensions may limit the decline. The US has stopped maritime traffic for sanctioned oil tankers tied to Venezuela and is pushing for tougher sanctions on Russia’s energy sector to help with peace talks in Ukraine. The value of the Canadian Dollar is affected by factors such as the Bank of Canada interest rates, oil prices, and economic data. Higher oil prices, strong economic performance, or rising inflation usually support the CAD, while weak data, low interest rates, or falling oil prices could weaken it. Our main focus is the upcoming US Consumer Price Index data, which will likely guide the US Dollar’s movements against the Canadian Dollar around the 1.3800 level. Recent data showed US inflation for October 2025 at 3.5%, significantly above the Fed’s 2% target. A similar or higher figure for November would reinforce the Federal Reserve’s cautious approach, likely pushing USD/CAD higher. This careful outlook from the Fed is already reflected in the market, where federal funds futures suggest a greater than 75% chance that rates will not change in January 2026. Governor Waller’s recent comments support this view, indicating there is no rush to ease policies. For derivatives traders, this makes bets on a quick Fed shift less appealing and favors strategies that support a stronger US dollar.

Strategies Amidst Market Dynamics

On the Canadian side, the loonie is facing pressure from falling oil prices. West Texas Intermediate crude oil is struggling near $56 a barrel, a level not seen since concerns over an economic slowdown in late 2023. This weakness in Canada’s main export makes it hard for the Canadian Dollar to strengthen against the US Dollar. In this environment, we see value in buying USD/CAD call options that expire in late January or February 2026. This strategy lets us benefit from a potential rise in the pair, driven by a strong CPI report or ongoing oil weakness. If implied volatility stays low before the data release, these options could be relatively cheap. For a more cautious approach, a bull call spread could be a good choice. This involves buying a call option at a lower strike price, like 1.3850, and selling another call at a higher strike, such as 1.4000. This strategy limits initial costs and defines our maximum profit. It’s suitable if we expect a steady, not dramatic, upward move in the coming weeks. We must also keep an eye on geopolitical tensions involving sanctioned oil from Venezuela or Russia, as they could trigger a sudden spike in crude prices and boost the CAD. To protect against this or a surprisingly low US inflation report, holding a small number of out-of-the-money USD/CAD put options could be wise, offering a safeguard against an unexpected change in direction. Create your live VT Markets account and start trading now.

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