The Canadian Dollar (CAD) is currently on a downward trend, losing 0.2% against the US Dollar (USD) today. This puts it behind other currencies. The Federal budget plans to increase spending in housing, defense, infrastructure, and productivity to boost growth. However, the expected deficit for this fiscal year has jumped to CAD78 billion, higher than the earlier forecast of CAD42 billion.

Minority Government Support

The minority government may need additional support to get the budget approved, but another election seems unlikely. The CAD hasn’t reacted positively, with its current rate straying further from the fair value estimate of 1.3917. The USD has gained ground, breaking through the 1.4080 resistance level, which now acts as initial support. It is expected to rise further towards 1.4160, representing a 50% retracement of the USD’s decline from February to June. With USD/CAD surpassing the 1.41 mark, the Canadian dollar continues to underperform, largely due to domestic policy issues. The federal budget’s CAD78 billion deficit is causing concern in the market, especially when compared to the CAD40 billion deficit from the previous fiscal year. This increase in spending is happening while the Bank of Canada attempts to keep inflation in check, creating a challenging situation for the currency. The policy differences between Canada and the United States are becoming more evident, favoring a stronger USD. Recent US data shows that non-farm payrolls for October 2025 exceeded expectations by adding 210,000 jobs, reinforcing the Federal Reserve’s “higher for longer” approach to interest rates. In contrast, the Bank of Canada decided to maintain its rate in the last meeting, citing worries about sluggish Canadian GDP growth, which is now below 1% annually.

Impact Of WTI Crude Oil Prices

Additionally, WTI crude oil prices, a crucial Canadian export, have recently dipped below $75 a barrel due to fears of a global slowdown. This combination of low commodity prices and expansive fiscal policy leaves the CAD vulnerable. We believe the most likely direction for the currency is downward. Given that we’ve broken the important 1.4080 resistance level, traders might want to consider strategies that anticipate further CAD weakness in the weeks ahead. Options like buying USD call options or selling CAD futures could effectively express this outlook, with targets in the 1.4160-1.4170 range. This zone represents a significant 50% retracement of earlier declines this year. Volatility is also an important aspect to monitor; the 1-month implied volatility for the pair has risen from 6.0% to 7.5% recently. This indicates that the market expects larger price swings, making long-volatility strategies like straddles potentially lucrative if a catalyst drives the trend forward. Traders might use these strategies to capitalize on significant movements through the next resistance level. Historically, a steady move above 1.42 could bring us closer to levels we saw during the market turbulence in early 2020. While we haven’t reached those extremes yet, current trends suggest that buying dips in USD/CAD is the wiser approach. We’ll be closely observing whether the pair can stabilize above 1.41 before testing higher levels. Create your live VT Markets account and start trading now.

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