The USD/CAD currency pair is currently below its 200-day moving average of around 1.3950. This follows a 25 basis point rate cut by the Bank of Canada, which lowered the policy rate to 2.25%. The Bank pointed to a weak job market and uncertainties in US trade but plans to pause further cuts. This decision is backed by expectations of a supportive Canadian budget and stable inflation, which help strengthen the CAD.

Rate Cut Impact

The Bank of Canada’s cut to 2.25% was widely expected at 85%. They highlighted the weak Canadian labor market and the effects of US tariffs. The Bank aims to keep the rate steady at 2.25% if inflation and economic growth meet forecasts. They project a GDP growth of 0.75% SAAR in the second half of the year, an improvement from 0.2% in the first half. Core inflation is anticipated to slow from 3.2% in Q3 to 2.9% in Q4. It’s unlikely the Bank of Canada will reduce the policy rate below the neutral range of 2.25% to 3.25%, which may benefit the CAD. The Canadian government will present a stimulative budget on November 4, and inflation remains high. The FXStreet Insights Team shares observations and insights from various analysts. Recently, the Bank of Canada made a hawkish move by lowering the policy rate to 2.25%, indicating that additional cuts are not expected. This decision comes as Canada’s unemployment rate recently rose to 6.4% in early October 2025. Currently, USD/CAD remains firmly under the 200-day moving average of 1.3950, serving as a significant barrier. We expect the Canadian dollar to stay strong, as the Bank of Canada has positioned its rate at the lower end of the neutral range. With the government planning a supportive budget soon and core inflation above target, prospects for further rate cuts are limited. This scenario makes options strategies betting on USD/CAD not breaking higher in the next few weeks attractive.

Options Strategies

Traders might consider selling out-of-the-money USD call options with strike prices above the psychological threshold of 1.4000. This approach takes advantage of time decay and the pair’s inability to surpass the technical resistance at 1.3950. The Bank of Canada’s decision to hold rates steady should further suppress volatility, making option-selling strategies more appealing. The main risk comes from US trade policies, especially with ongoing USMCA reviews that might introduce new tariffs on Canadian products. However, a similar situation occurred in 2019 when the last “insurance” rate cut by the US Federal Reserve created a solid market floor. The Bank of Canada’s recent action feels like another clear signal, paving the way for the weeks ahead. Create your live VT Markets account and start trading now.

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