The USD/CAD pair is stable around 1.4010 in the early European session, as everyone awaits a resolution to the US government shutdown and possible Federal Reserve rate cuts. Recent data shows that US private employers cut an average of 11,250 jobs weekly in the latter half of October, suggesting some weakness in the US labor market, which could affect the US Dollar. The US Senate has approved a deal to end the historic government shutdown, with a vote in the House expected soon. If it passes, President Trump will have the final say. A reopened government may release delayed economic data, which analysts expect could show a slowing economy. This might lead the Federal Reserve to lower interest rates, impacting the USD’s value against the CAD.

Bank of Canada Interest Rates

In October, the Bank of Canada reduced its rate to 2.25% and indicated that no further cuts are expected. Market participants believe this rate will stay until mid-2027, but some anticipate a possible change by early 2026, depending on trade outcomes. The Canadian Dollar is affected by the Bank of Canada’s interest rates, oil prices, and the overall economic climate, with inflation and trade balance being crucial factors. Economic indicators like GDP and employment also influence the CAD’s value since a stronger economy helps strengthen the currency. Currently, the USD/CAD pair remains around 1.4010, although underlying trends suggest a possible change ahead. The market is increasingly expecting a US Federal Reserve rate cut in December, while the Bank of Canada seems to have wrapped up its easing cycle for now. This difference in central bank policies is essential to monitor. Arguments for a weaker US dollar are gaining traction, as recent data shows clear economic slowdown. The October 2025 non-farm payroll report revealed only 95,000 new jobs, falling short of expectations and confirming weaknesses in the labor market. With October 2025 US inflation at 2.1%, the CME FedWatch Tool now shows a 75% chance of a rate cut next month. In contrast, the Canadian dollar is on a firmer ground. The Bank of Canada’s decision to maintain its rate at 2.25% last month seems justified, as Canadian inflation for October 2025 was 2.9%, remaining close to the central bank’s target. Additionally, with WTI crude oil prices stable around $75 per barrel, the loonie has consistent support.

Derivative Trading Strategy

For derivative traders, this situation suggests positioning for a decrease in the USD/CAD exchange rate. Buying put options on USD/CAD could be a good move to profit from a potential drop, especially since ending the US government shutdown will release a backlog of economic data expected to confirm the slowdown. This strategy offers a clear-risk option to target the downside. Today’s immediate focus will be the Bank of Canada’s Summary of Deliberations, which will be published later. Any subtle changes in its outlook will be significant. Historically, looking back at the Fed’s 2019 policy shift, moves toward rate cuts led to an extended period of US dollar weakness. A similar trend may be developing, making the upcoming weeks critical for executing these strategies. Create your live VT Markets account and start trading now.

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