The USD/CAD pair is trading around 1.3740 during Asian hours. This marks a second day of losses for the pair, mainly due to the US Dollar facing challenges from expected Federal Reserve policy changes. Federal Reserve Member Stephen Miran recently shared that new data supports his view that there will be no recession in the near future. In addition, the US GDP Annualized for Q3 is expected to grow at 3.2%, which is slower than the previous quarter’s growth of 3.8%.

Influence of Rising Precious Metals

The movement of the USD/CAD pair is also affected by the rise in precious metals, driven by safe-haven demand amid US-Venezuela tensions. Higher oil prices are helping the Canadian Dollar, as Canada is the largest supplier of crude oil to the US. West Texas Intermediate oil is currently priced around $57.90 per barrel, with prices climbing due to political risks. The value of the Canadian Dollar (CAD) is affected by factors like the Bank of Canada’s interest rates, Canada’s economic health, inflation, and trade balance. In summary, oil prices, inflation data, and macroeconomic updates like GDP and employment figures are crucial for determining the value of the Canadian Dollar. These factors collectively shape the outlook for Canada’s currency and policy choices. A similar scenario is unfolding in USD/CAD, reminiscent of the time when the pair fell below 1.3750 due to Federal Reserve easing expectations. Even though the pair is now trading near 1.3550, the main drivers are still in play. However, the focus has shifted to the *next* actions of central banks after a period of stability.

Shift in Market Dynamics

In the past, Fed officials promoted easing to prevent recession, but this narrative has changed significantly by late 2025. The Federal Reserve is keeping the federal funds rate at 4.75%, as recent data shows Core PCE inflation stubbornly above the target at 3.1%. This persistence means that further easing is unlikely, providing a support level for the US Dollar. On the Canadian side, the situation is more fragile. The Bank of Canada has set its policy rate at 4.5%. Given that Canada’s latest GDP growth figures for Q3 2025 are only 1.2%, it appears that the BoC may lean more dovishly than the Fed. This interest rate difference favors the US and should limit significant appreciation of the Canadian Dollar in the near future. It’s important to consider the notable rise in oil prices, which primarily supports the loonie. When recent reports surfaced, WTI crude was near $58 a barrel; today, it remains above $85. This strength is due to OPEC+ maintaining supply discipline and ongoing geopolitical tensions in Eastern Europe, a trend observed over the past few years. With these opposing factors—a hawkish Fed and high oil prices—we expect increased volatility in the coming weeks. For traders dealing with derivatives, this isn’t the time for simple bets. Instead, consider buying straddles or strangles to benefit from a significant price movement in either direction. Specifically, purchasing February 2026 call options on USD/CAD could be a smart way to position for possible US dollar strength if oil prices begin to weaken. Create your live VT Markets account and start trading now.

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