### USD/CAD Sees a Decline The Bank of Canada plans to cut rates by 25 points but is still optimistic about its rate outlook, with a real yield compared to a 2.4% CPI. Analysts believe this may mark the end of the BoC’s easing cycle, especially with moderate inflation and unemployment rates. Several factors influence the Canadian Dollar (CAD), such as the Bank of Canada’s interest rates, oil prices, economic health, and trade balance. Higher oil prices and strong economic data can boost the CAD by attracting investment and possibly raising interest rates. On the other hand, weak economic data can lead to a decline in the CAD. Looking back at late 2019, the Federal Reserve was in the midst of an easing cycle, with expectations for rates to drop to 3.75-4.00%. At that time, both the Fed and the Bank of Canada were cutting rates, creating different challenges. Fast forward to October 29, 2025, and the situation has changed drastically. The Federal Reserve is currently keeping its benchmark rate steady in the 4.50-4.75% range. This decision comes after recent CPI data showed core inflation stubbornly holding at 3.2%. Unlike before, the Fed’s focus now is on controlling inflation rather than stimulating growth. This strong stance suggests the US dollar will remain bolstered by high interest rates for the foreseeable future. ### The Bank of Canada’s Economic Picture In contrast, the Bank of Canada is facing a weaker economic outlook. Recent GDP data for the third quarter of 2025 shows a slowdown to just 0.9% annualized growth. The BoC has indicated a more dovish approach, suggesting they may need to cut rates before the Fed. This growing difference in policy is likely to push the USD/CAD pair higher. For traders, this situation indicates a strategic move towards a stronger US dollar against the Canadian dollar in the upcoming weeks. We recommend considering USD/CAD call options that expire in December 2025 or January 2026 to capitalize on this anticipated upward trend. These options offer potential gains while clearly limiting the maximum risk involved. We should also keep an eye on oil prices, a traditional driver for the loonie. West Texas Intermediate (WTI) crude has been trading around $82 a barrel, which isn’t substantial enough to counteract the negative impact on the Canadian dollar due to its interest rate disadvantage against the US dollar. Unless we see a significant and sustained rise in oil prices above $90, the USD/CAD likely faces an upward trend. Create your live VT Markets account and start trading now.

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