The Canadian Dollar (CAD) is holding steady in low trading conditions. Stocks are stabilizing, and market volatility is slightly decreasing, as shown by the VIX dropping below 20. This brings some relief to the CAD, while the US Dollar (USD) is experiencing a general decline. In the short term, external factors mainly influence the CAD, as economic signals are unclear. The Bank of Canada’s Senior Deputy Governor, Rogers, has called for initiatives to boost domestic productivity.

Technical Analysis

The USD has gained recent ground, positioning itself above the anticipated equilibrium rate of 1.3783, and currently holding about two standard deviations above fair value estimates. USDCAD reached a minor peak of 1.4080 yesterday, which now serves as resistance. The intraday chart reveals a bearish outside range signal, whereas the daily chart shows a bearish “shooting star” candle for the session. Although the trend favors the USD, it seems technically overbought according to the daily chart. Initial support levels for the USD are found at 1.3970/75 and 1.3930. Since the US dollar appears overbought, the recent rise to 1.4080 may signal a short-term peak. Bearish indicators like the “shooting star” candle indicate that momentum is waning, presenting an opportunity for traders anticipating a reversal. The Canadian dollar’s significant undervaluation is increasingly evident, especially as recent fundamental changes support the currency. Data from last week revealed that WTI crude oil prices are stabilizing above $92 per barrel, which enhances Canada’s trade terms. This strength in commodities was missing during the loonie’s earlier weakness in 2025.

Domestic Economic Picture

On the domestic front, Canada’s economic situation is stabilizing, reducing the Bank of Canada’s need to lag behind other central banks. The latest September 2025 data showed core inflation holding steady at 2.2%, well within the BoC’s target range. This lowers the chances of rate cuts and strengthens the currency’s foundation. In contrast, recent US data suggests a possible slowdown, which could weaken the US dollar. The latest Non-Farm Payrolls report added only 160,000 jobs, falling short of forecasts, and led markets to consider a higher likelihood of a Federal Reserve rate cut in early 2026. This potential policy divergence could exert downward pressure on the USD/CAD pair. As a result, we see value in derivative strategies that capitalize on a decline in the USD/CAD exchange rate, such as buying put options with strike prices below the 1.3930 support level. This situation recalls the late 2022 market when an overbought USD peaked near 1.39 before correcting lower in the following months. A gradual move back towards the pair’s estimated fair value of 1.3783 seems likely in the weeks ahead. Create your live VT Markets account and start trading now.

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