USD/CAD rose above 1.3950 during Monday’s Asian session due to stronger-than-expected Canadian GDP growth of 2.6% in Q3. This data decreased the chances of further interest rate cuts by the Bank of Canada. In the U.S., the potential nomination of Kevin Hassett for Fed Chair indicated possible dovish policies, impacting the U.S. Dollar. The CME FedWatch tool now shows an 87% likelihood of the Fed cutting rates by 25 basis points at its December meeting.

The Canadian Dollar’s Value

The Canadian Dollar’s value is affected by several factors, including interest rates set by the Bank of Canada, oil exports, and the overall health of the economy. Recent strong GDP data has strengthened the CAD, while important economic indicators also influence its direction. Higher oil prices usually support the Canadian Dollar because Canada depends on oil exports. Additionally, economic data can greatly impact the CAD. Positive economic conditions often lead to a stronger currency. The Bank of Canada aims to keep inflation within a specific range, which affects interest rates and the strength of the Canadian Dollar. Current trends suggest that the U.S. Dollar might weaken against the Canadian Dollar in the next few weeks. The Federal Reserve is anticipated to cut interest rates, while the Bank of Canada is likely to maintain its current rates due to the unexpectedly strong economy. This difference in policy can lead to a lower USD/CAD exchange rate. On the U.S. side, we are looking for signs of an economic slowdown, which would support a rate cut. For instance, throughout 2023, the U.S. ISM Manufacturing PMI consistently stayed below 50, indicating contraction. If today’s report reflects this trend, it will increase expectations for Fed easing. The market is already predicting an 87% chance of a rate cut next week, which is a strong indicator.

Canada’s Economic Strength

Canada’s economy shows impressive strength, which is likely to support the Loonie. The reported 2.6% annualized GDP growth for Q3 2025 is a notable improvement from the 1.1% contraction in Q3 2023. This strong performance makes it unlikely that the Bank of Canada will cut rates soon like the Fed. Another major factor boosting the Canadian Dollar is oil prices, Canada’s largest export. West Texas Intermediate (WTI) crude oil has been trading above $80 per barrel, providing strong support for the Canadian economy and currency. A stable or rising oil price will likely put further downward pressure on the USD/CAD pair. Given this outlook, we should explore strategies that benefit from a declining USD/CAD. Buying put options on the pair could be a smart move, allowing us to profit from a potential drop while limiting our risk to the premium paid. Important events to monitor this month are today’s U.S. manufacturing data and the Federal Reserve’s interest rate decision next week. Create your live VT Markets account and start trading now.

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