Impact on Canadian Dollar

The Canadian Dollar (CAD) is affected by several factors such as Bank of Canada interest rates, oil prices, economic health, and inflation. When oil prices rise, the CAD often strengthens. Conversely, falling oil prices and poor economic indicators can weaken the CAD. The actions of the Bank of Canada also influence credit conditions, which in turn affects the strength of the CAD. Economic indicators like GDP and employment rates help predict CAD trends. Stronger economic data usually supports a stronger currency, while weaker data may decrease the CAD’s value. As of October 1, 2025, the USD/CAD exchange rate remains steady above 1.3900. The main factors affecting the CAD are low oil prices and a cautious Bank of Canada (BoC). This situation suggests that any dip in the exchange rate could present a buying opportunity, as the general trend appears to be upward. Oil prices are a significant pressure point for the Canadian dollar. This morning, WTI crude struggled to stay above $75 a barrel after the EIA reported a surprise increase in US oil inventories. With the next OPEC+ meeting approaching, traders are speculating about a possible production increase, which could keep prices, and consequently the loonie, in check.

Options Trading Considerations

The Bank of Canada is hinting at another rate cut to support the economy, especially after the August 2025 CPI was reported at a manageable 2.1%. This difference from a cautious US Federal Reserve provides a boost to USD/CAD. We think the BoC has more room to move, particularly at its meeting on October 22nd, likely putting additional pressure on the CAD. However, the US dollar faces challenges that limit its potential gains against the CAD. The looming threat of a US government shutdown and expectations of two rate cuts by the Fed in 2025 are dampening strong dollar growth. Today’s US ADP employment report will be crucial; a poor result would likely strengthen support for Fed rate cuts. For options traders, this period of consolidation with a positive tilt is favorable. Buying out-of-the-money call options with a strike price of 1.4000 and a November expiration could be a low-cost way to position for a potential breakout. Additionally, selling cash-secured puts with a strike price near the 1.3800 support level might be another effective strategy to earn premium while the pair moves within a range. We observed a similar trend in the second half of 2023, when diverging central bank policies resulted in stable currency trends. Current implied volatility is moderate due to the sideways price action. This situation could provide a good chance to establish positions before a potential breakout driven by upcoming economic data or central bank announcements. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now