The Canadian Dollar (CAD) is steady after dropping below the 1.40 mark due to strong gains in the US Dollar (USD) this week. Currently, CAD is well below its estimated fair value of 1.3790, while USD is almost two standard deviations above its normal level and one standard deviation above its 40-day moving average. There are few signs that the CAD will recover. The upcoming Canadian employment report could influence this, with expectations of a small job gain of about 5,000 due to easier monetary policy. However, some forecasts predict a loss of 50,000 jobs for September. The USD is stable in the low 1.40 range, around 1.4020, which represents a 38.2% retracement from its decline between February and June.

Key Levels And Projections

If the USD rises beyond the 1.4020 level, it could climb to the mid-1.41 range. To support the CAD, the USD needs to drop back into the upper 1.38 range. Important support levels for the USD are at 1.3930 and 1.3880. This summary includes market insights from analysts at FXStreet. Currently, the USD is holding strong above 1.40 against the CAD. The pair is statistically overbought but shows no signs of reversing. This morning’s Canadian employment data for September 2025 confirmed our concerns, revealing a significant loss of 60,000 jobs—far worse than the slight gain the market expected. This weak data makes it unlikely the Canadian dollar will recover soon. Given the recent breakout above the 200-day moving average and the poor economic data, traders might consider buying call options on USD/CAD, with strike prices between 1.4100 and 1.4150. This strategy allows for profit if the USD continues to rise towards the mid-1.41s while limiting potential risks. We recommend choosing expirations in late November or December 2025 to allow the trade sufficient time to develop.

Market Strategies And Considerations

Despite the positive trend, we observe that the USD is stretched, trading nearly two standard deviations above its recent average. For those wanting to hedge or prepare for a possible downturn, buying out-of-the-money put options with strikes around 1.3900 could be a cost-effective strategy. This would provide a benefit in case of a sharp drop if the pair fails to maintain the 1.40 level. The gap between central bank policies is broadening. The US Federal Reserve signals that rates will stay high to manage persistent core inflation, last reported at 3.2%. Meanwhile, the Bank of Canada faces pressure to ease its policies due to several weak economic reports. Additionally, WTI crude oil prices have fallen below $80 a barrel this month, placing further strain on the Canadian economy. It’s worth remembering stressful periods in the past, like early 2020, when this currency pair surged toward 1.46 under similar conditions of US dollar strength and weaker commodities. While we don’t predict such a large move right now, moving toward 1.42 in the next few weeks is historically plausible. Implied volatility is increasing, indicating that the market expects larger price swings soon. Create your live VT Markets account and start trading now.

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