The Canadian Dollar fell more than 0.5% against the US Dollar on Thursday, reaching a 26-week low. Since mid-June, its value has dropped a total of 3.65%. The ongoing US government shutdown is affecting market feelings, leading to increased demand for the US Dollar. Political standstill in the US Senate is disrupting government funding, which impacts the foreign exchange market.

USD/CAD Breaks Key Level

The USD/CAD has recently traded around 1.4025, breaking the 1.4000 level. This change shows a stronger trend for the US Dollar, exceeding important moving averages. The Canadian Dollar’s value is affected by interest rates from the Bank of Canada, oil prices, economic conditions, and trade balance. Higher oil prices usually boost the CAD since oil is Canada’s main export. Inflation and economic indicators, such as GDP and employment numbers, also affect the CAD. When inflation rises, interest rates often increase, attracting foreign investments and supporting the CAD. A strong economy helps the Canadian Dollar as it draws foreign investment and might lead the Bank of Canada to raise interest rates. In contrast, weak economic data can weaken the CAD. With the strong momentum of the US Dollar, driven by safe-haven buying during the government shutdown, the USD/CAD is likely to trend upward. The break above the important 1.4000 psychological level indicates this trend may continue in the coming weeks, suggesting that positioning short on the Canadian Dollar against the US Dollar is wise.

Outlook on the Canadian Dollar

This perspective is reinforced by new domestic data released today, October 10th, showing Canada’s unemployment rate rose to 7.3%, falling short of expectations. This economic weakness comes as WTI crude oil prices dropped below $75 per barrel, down from over $85 just last month, which is hurting Canada’s main export. The mix of a strong safe-haven currency and a weak domestic currency is creating a strong trend. For derivatives traders, this suggests buying USD call options or CAD put options with expirations in late November or December 2025. The overbought RSI reading near 70 indicates a possible short-term pause, and using options lets us stay bullish while managing risks against temporary pullbacks. This strategy prepares us for a move toward the March 2025 highs without being affected by short-term volatility. We are monitoring the 1.4450 level as a potential target, recalling the risk-off volatility from early 2020. As long as the USD/CAD pair stays above the previous resistance zone around 1.3900, the bullish outlook remains strong. Any dips toward that level should be seen as buying opportunities rather than signs of trend changes. The growing interest rate gap between the two countries also supports this outlook. In 2024, the Bank of Canada was seen as somewhat hawkish. However, with the recent weak economic data, markets are now discounting any chance of a rate hike, widening the gap in favor of the US Dollar. Create your live VT Markets account and start trading now.

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