The USD/CAD pair is close to 1.4050, benefiting from falling oil prices that weaken the Canadian Dollar. The pair gains as WTI crude oil prices drop after Russia’s Novorossiysk port resumes oil loading following a two-day halt.

Oil Prices Falling

Oil prices have pulled back to $59.30 per barrel, raising concerns about oversupply. The International Energy Agency warns of a possible surplus next year. According to the CME FedWatch Tool, there is a 46% chance that the US Federal Reserve will cut rates by 25 basis points in December. The Bank of Canada is likely to keep interest rates steady until at least 2026, unless economic conditions worsen. October’s Canadian CPI data is expected soon and will influence future monetary policy. The US Dollar is gaining strength due to cautious statements from Federal Reserve officials, including Kansas City Fed President Jeffery Schmid. The market is shifting from a previously high 67% chance of a Fed rate cut. The Canadian Dollar’s value is closely tied to interest rates, oil prices, and market sentiment. Economic indicators like GDP and employment also influence the CAD and the Bank of Canada’s interest rate decisions. Higher oil prices usually support the CAD by increasing export demand. Currently, the USD/CAD pair holds around 1.4050, a level it’s struggled to maintain since the highs of 2022. This strength is mainly due to the ongoing decline in WTI crude oil, which is now below $60 a barrel. The outlook for oil prices looks bearish for the next few weeks, which could further pressure the Canadian Dollar. The restart of operations at Russia’s Novorossiysk port increases supply, and the International Energy Agency predicts a potential 4 million barrel-per-day surplus by 2026, presenting a bleak long-term scenario. Notably, oil prices averaged over $75 per barrel in the third quarter of 2025, making the current price of $59.30 a significant hit to Canadian exports.

Central Bank Expectations

For the Bank of Canada, market expectations are stable, with no rate changes anticipated until at least the end of 2026. The upcoming October CPI data, due today, will be crucial. If it shows another weak reading, following September’s 2.8% figure, it will reinforce the BoC’s cautious approach. This stands in stark contrast to the US, where a strong October jobs report indicated over 200,000 new jobs, dampening expectations for a near-term Federal Reserve pivot. This divergence in monetary policy strengthens the case for continued USD/CAD gains. The likelihood of a December Fed rate cut has plummeted from 67% to 46% in just one week, indicating a hawkish turn that supports the US dollar. For derivative traders, this outlook suggests a strategic position for further gains in the pair. Given this scenario, traders may consider buying USD call options with a strike price around 1.4200, targeting levels not reached in several years. Utilizing call spreads could also be an effective approach to lower initial costs while still aiming for potential profits. The main risk remains a surprise increase in oil prices or an unexpected dovish shift from the Federal Reserve. Create your live VT Markets account and start trading now.

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