USD/CAD is stable around the mid-1.4000s, showing limited downside potential. The pair trades within a narrow range due to mixed economic signals, including soft Canadian CPI data and falling crude oil prices, which are putting pressure on the Loonie. On Tuesday, USD/CAD couldn’t hold onto the gains from a recent spike to a one-and-a-half-week high. Prices remain around the mid-1.4000s, providing a supportive environment for bullish traders, even with little movement today.

Effect of Canadian Inflation

The Canadian Dollar is under pressure due to a weaker Consumer Price Index (CPI) report, which dropped from 2.4% to 2.2% year-over-year in October. Although this was slightly better than expected, falling crude oil prices are still weighing on the Loonie, benefiting the USD/CAD pair. The US Dollar is maintaining its earlier gains, backed by cautious expectations from the Federal Reserve. Recent comments from the Fed indicate a reduced likelihood of any easing, which lowers chances for a rate cut in December and supports the safe-haven appeal of the USD. Concerns about the US economy’s strength due to a prolonged government shutdown are tempering USD gains. Traders are waiting for the FOMC Minutes and US Nonfarm Payrolls insights, which could influence Fed rate decisions and the USD/CAD dynamic. As of today, November 18, 2025, USD/CAD is consolidating around 1.3850, but the fundamental landscape is changing. While the pair has been trading within a range, pressures from differing central bank expectations and rising commodity prices indicate increasing downside risks. This quiet consolidation could signal a bigger move downward in the coming weeks.

Dynamics of the Canadian Economy

The latest Canadian CPI data for October 2025 came in unexpectedly high at 2.8%, far exceeding the Bank of Canada’s comfort zone and defying predictions of cooling inflation. This situation has led markets to rule out any chance of a rate cut by the BoC in early 2026, thus supporting the Canadian dollar. This contrasts starkly with past years, such as late 2018, when lower inflation allowed the BoC to pause on interest rates. Furthermore, WTI crude oil prices are holding steady, recently surpassing $85 per barrel, driven by strong demand in Asia and continued discipline from OPEC+. Typically, when oil prices remain above $80, USD/CAD trends closer to the 1.3500 level. This ongoing strength in Canada’s main export bolsters the currency. On the other hand, the Federal Reserve seems to be in a long pause. Recent retail sales data for October 2025 suggests a slowdown in US consumer spending. The contrasting policies—a hawkish BoC compared to a neutral-to-dovish Fed—could lead to weakness in USD/CAD, as the market seems to underestimate how this gap in monetary policy may widen. For derivative traders, now could be a good time to buy USD/CAD put options in the coming weeks. This strategy would allow traders to participate in a potential drop towards the 1.3600-1.3700 range, while clearly defining the maximum risk based on the premium paid. Options expiring in late December 2025 or January 2026 may align well with this anticipated movement. It’s important to recall how political uncertainty, like the previous government shutdown in 2018-2019, can suddenly limit the US dollar’s strength, regardless of Fed policy. With another budget debate heating up in Washington as the year-end deadline approaches, a similar situation could arise. This potential for US-specific challenges reinforces the view that the path of least resistance for USD/CAD is likely downward. Create your live VT Markets account and start trading now.

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