The USD/CAD rose by 0.10% to around 1.4030, driven by a boost in risk appetite from easing US-China trade tensions and lower oil prices affecting the Canadian Dollar. Recent discussions between US and Chinese officials, along with upcoming meetings, have sparked hopes for a trade deal, improving market sentiment. In the US, reduced worries about regional banks following strong earnings from major institutions have increased risk appetite. Still, the US Dollar is cautious as it awaits the delayed September Consumer Price Index (CPI) release, which is important for predicting Federal Reserve monetary policy. Markets expect a 25-basis-point rate cut in October.

Focus on Canadian Economic Indicators

In Canada, attention is on coming economic data, especially the Consumer Price Index. This data is critical for guiding the Bank of Canada’s monetary policy after its recent rate cut. Lower inflation could lead to more easing, while a higher CPI might limit policy options. The Canadian Dollar is also under pressure from declining oil prices, with West Texas Intermediate trading below $57, compounded by global oversupply concerns. Overall, the USD/CAD pair remains supported as most expectations for Fed rate cuts are already priced in, while weak energy prices restrict the Canadian Dollar’s recovery. Now, on October 20, 2025, the focus has shifted from simple trade optimism between the US and China to a more strategic “de-risking” in technology and supply chains. Last year’s data show Mexico is now the US’s top trading partner, which has significantly changed capital flows away from China.

Energy and Monetary Forces

The Canadian dollar is getting support from factors that were not present in earlier analyses. West Texas Intermediate (WTI) crude has been strong, averaging over $85 per barrel in the third quarter of 2025, a significant increase from the under $60 prices during past trade tensions. This boost in energy exports is beneficial for the Canadian economy and its currency. Monetary policy is now the main focus, with the situation having drastically shifted since the aggressive rate hikes of 2022-2023. The Bank of Canada currently holds its key rate at 4.5%, while the Federal Reserve is slightly higher at 5.0%. This leads to a small but crucial rate differential favoring the US dollar. With the latest September CPI data showing Canadian inflation at 2.8% and US inflation at 3.1%, the Fed has limited space to ease its policies. For traders in derivatives, this sets up a classic tug-of-war between strong commodity prices bolstering the CAD and a hawkish Fed supporting the USD. This hints that range-trading strategies or volatility plays on the USD/CAD pair could be beneficial in the weeks ahead. Options traders should keep in mind that implied volatility often rises around central bank meetings, with the Bank of Canada’s decision coming next week. We are closely monitoring upcoming inflation and employment data from both countries. Any indication that the US economy is slowing quicker than Canada’s could rapidly shift expectations for the Fed’s November meeting, challenging the dollar’s recent strength and potentially pushing USD/CAD to lower support levels. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now