USD/CAD remains stable, having recently reached a six-month high of about 1.0480. Ongoing trade tensions between the US and China create a fragile risk environment. The Canadian Dollar is holding steady against the US Dollar, which is facing pressure from these trade disputes and expectations of more interest rate cuts from the Federal Reserve. Currently, USD/CAD is trading around 1.0438, after hitting a high of 1.0479. The trade conflict between the US and China has resurfaced, with both sides issuing threats and retaliatory actions. A potential trade deal between the US and Canada is also under review, especially concerning autos, steel, and energy exports.

Canadian Dollar and Crude Oil Prices

The Canadian Dollar’s potential for growth is limited by falling crude oil prices, with West Texas Intermediate (WTI) nearing a five-month low of about $58 per barrel. Traders are turning their attention to the Bank of Canada, reassessing the likelihood of rate cuts at the monetary policy meeting on October 29, following positive labor market data. September’s employment report for Canada showed strong job gains, easing some pressure on the Bank of Canada. The odds for a 25-basis-point cut are now around 50-55%, down from 70% earlier this month. Market focus is also on the Federal Reserve, where there’s a 97% chance of a rate cut at the October meeting, and a 94% chance for another cut in December. Fed officials have suggested potential policy easing. Governor Waller has pointed out that the neutral rate remains unchanged and the economy shows resilience, which supports the idea of rate cuts. The US Dollar has shown slight declines against major currencies while strengthening against the Australian Dollar. The changes in the US Dollar against other currencies, with provided percentages, highlight the market’s current conditions.

USD CAD Outlook Ahead of Central Bank Meetings

USD/CAD is holding near 1.0438, but this stability feels fragile as we approach the central bank meetings in two weeks. Rising trade tensions between the US and China have increased market volatility, with the VIX index recently crossing 18%, reminiscent of the uncertainty from the supply chain disruptions of 2024. Traders may consider buying options to guard against sharp market movements, as a breakout from this range seems increasingly likely. Governor Macklem’s upcoming speech is crucial, and we’ll be listening for any dovish hints due to the decline in WTI crude prices, now around $58 a barrel. This ongoing weakness in oil, a vital Canadian export, heavily impacts the Loonie and might prompt the Bank of Canada to soften its stance. If Macklem emphasizes growth over inflation—recent data from Statistics Canada showed inflation easing to 2.4%—the odds for a rate cut on October 29 could rise significantly from the current 55%. In the US, the market is almost fully anticipating a Federal Reserve rate cut on October 30, with a 97% probability already priced in. This expected cut follows the last US jobs report, which indicated a slowdown in hiring for the second month in a row, providing dovish officials with the data to support policy easing. This expectation limits the US Dollar’s potential upside, making it tougher for USD/CAD to test recent highs near 1.0480 again. The key trade centers on the potential policy differences between the two central banks at the end of the month. If the Bank of Canada keeps rates steady while the Fed moves ahead with its anticipated cut, the interest rate gap will narrow in favor of the CAD, likely pushing USD/CAD lower. Some traders are positioning for this outcome with bearish risk reversals, anticipating a move back toward the 1.0350 support level we saw earlier in September. Create your live VT Markets account and start trading now.

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