The Canadian Dollar is facing challenges against the US Dollar because of weak feelings in the economy and falling oil prices. Right now, the USD/CAD exchange rate is about 1.4035, with some cautious hope about US-China trade talks. The Bank of Canada’s recent Q3 Business Outlook Survey shows that business confidence is slipping. The BOS Indicator dropped to -2.8, down from -2.4. Around 37% of companies plan to hire more staff, but fewer businesses want to raise prices. Additionally, 33% believe a recession could hit within a year.

Industrial Product Price Index

In September, Canada’s Industrial Product Price Index increased by 0.8% from the previous month, thanks to higher prices for metals and energy products. The Raw Materials Price Index also rose by 1.7%. There’s a 70% chance that the Bank of Canada might cut rates by 25 basis points at its meeting in October. The US Dollar is getting support from President Donald Trump’s soft comments on China ahead of trade discussions. However, expectations of interest rate cuts by the Federal Reserve are limiting its growth. Traders are anticipating 25-basis-point cuts in both the October and December meetings. Today, the US Dollar was particularly strong against the British Pound, according to the currency heat map. The Canadian Dollar is losing ground against the US Dollar, with the USD/CAD exchange rate around 1.3650. This decline is driven by disappointing Canadian economic reports and a recent drop in oil prices. Concerns about Canada’s economic growth are putting more pressure on the currency. The Bank of Canada’s latest Business Outlook Survey from earlier this month shows a clear decline in sentiment, similar to past periods of weakness. The survey reveals that businesses are cutting back on hiring plans and investment intentions for the upcoming year. This has sparked market speculation that the Bank of Canada, which has kept its policy rate at 4.25% since early 2024, may have to consider a rate cut sooner than expected.

Interest Rate Probabilities

Last week’s inflation data supports this view, as the September 2025 Consumer Price Index (CPI) fell to 1.9%, just below the central bank’s target of 2%. Overnight index swaps now show a 40% chance of a 25-basis-point rate cut by the Bank of Canada before the year ends. Traders will be paying close attention to any dovish hints in the bank’s next statement. In contrast, the US Federal Reserve has maintained a firmer approach, keeping its key interest rate in the range of 5.00% to 5.25%. This interest rate difference makes the US Dollar more attractive to investors looking for better returns. Recent US job data was stronger than expected, leading the Fed to hold rates steady for the moment. Global factors are also influencing the situation. Ongoing tensions between the US and China regarding semiconductor trade create a cautious market atmosphere, which usually boosts the US Dollar as a safe-haven currency. However, a slowdown in US manufacturing surveys from last month limits the dollar’s chances for a significant surge. This results in a complicated scenario where the dollar is strong but still has its own weaknesses. Given the bearish outlook for the Canadian Dollar, traders might want to consider strategies that benefit from a rising USD/CAD. Buying call options with a strike price around 1.3700 for December could offer potential gains if Canadian economic issues continue. Alternatively, using a bull call spread would allow traders to profit from a modest increase while limiting both potential profits and risks. Create your live VT Markets account and start trading now.

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