USD/CAD has dropped to around 1.4040 as the US government shutdown continues. The Senate’s failure to approve a Republican funding bill prolongs this shutdown. Additionally, falling crude oil prices are putting pressure on the Loonie, which helps limit the pair’s losses. Trade issues and a slowing US economy are weakening the US Dollar compared to the Canadian Dollar. The ongoing trade war with China and potential interest rate cuts from the Federal Reserve are also weighing on the USD. The shutdown is expected to extend into next week.

Impact of Crude Oil on the Canadian Dollar

Crude oil prices directly affect the Canadian Dollar, as oil is Canada’s main export. Lower oil prices can decrease the CAD’s value, even with possible Fed rate cuts that could further weaken the USD. The Canadian Dollar is influenced by factors such as Bank of Canada interest rates, oil prices, and the country’s trade balance. Strong economic data, like GDP and employment figures, can boost the CAD. Changes in the Bank of Canada’s interest rates impact the CAD. Generally, higher rates strengthen the Canadian Dollar. Economic health and inflation can lead to policy changes that attract investment and affect the CAD’s value. As of October 17, 2025, the USD/CAD pair is weakening below 1.4050. Ongoing US issues create a bearish outlook for the US Dollar. Traders of derivatives should prepare for possible further declines in this pair.

US Government Shutdown and Its Effects on the Dollar

The current US government shutdown significantly impacts the dollar. A similar situation during the 35-day shutdown in 2018-2019 led to increased market volatility and initial weakness in the greenback. With the Senate failing to pass a funding bill again, uncertainty is high, usually pressuring the affected currency. Expectations around Federal Reserve policy are also contributing to the USD’s weakness, making short positions on the dollar more appealing. Recent labor market data for September showed non-farm payrolls at 155,000, below the expected 210,000, strengthening the case for a rate cut at the next Fed meeting. This growing divergence in policies compared to other central banks is crucial for traders. For options traders, this uncertainty has raised one-month implied volatility for USD/CAD to nearly 8.5%, higher than its three-month average. This indicates that while buying puts on the pair could be profitable if the dollar declines, the cost of this strategy is increasing. Traders should weigh premium costs against potential rewards carefully. However, the Canadian Dollar faces its own challenges that might limit the USD/CAD’s decline. WTI crude oil prices have dropped to around $74 a barrel, down over 10% since late August 2025. Being a major oil exporter, Canada feels the impact of low energy prices, which can limit the Loonie’s strength. The Bank of Canada’s policy is also a key factor for traders. While the Fed signals possible cuts, Canada’s latest inflation report shows a headline CPI of 2.6%, above the central bank’s target. This suggests that the Bank of Canada may not cut rates as aggressively as the Fed, favoring the Canadian Dollar. In this environment, a smart strategy for derivative traders could be a bear put spread on USD/CAD. This approach allows for profit from a moderate decline in the pair while limiting initial costs, which is advantageous in a volatile market. The strategy supports the expected weakness of the US dollar while acknowledging the limitations posed by lower oil prices. Create your live VT Markets account and start trading now.

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