USD/CAD is trading at 1.3980 during Monday’s Asian session, having lost value due to challenges faced by the US Dollar. This drop follows forecasts showing a 97% chance of a Federal Reserve rate cut in October and 96% in December, driven by weaker US inflation data. The US Bureau of Labor Statistics reported a 3.0% year-over-year increase in the Consumer Price Index (CPI) for September, which is lower than the expected 3.1%. The monthly increase was 0.3%. The core CPI rose by 0.2% month-over-month and 3.0% annually. However, the US Dollar’s losses might be cushioned by easing trade tensions between the US and China, with possible agreements between President Trump and President Xi Jinping.

Impact Of Trade Relations

The US Treasury’s statement eases worries as China begins purchasing soybeans and relaxing export controls. On the other hand, tensions with Canada are rising due to a 10% increase in US tariffs. The Canadian economy and its currency are affected by factors like Bank of Canada (BoC) interest rates, oil prices, and inflation. Changes in oil prices significantly influence CAD since oil is Canada’s main export. Typically, higher oil prices strengthen the CAD due to an improved trade balance. Key economic indicators, such as GDP and employment data, also affect the CAD. A stronger economy attracts investment, possibly leading to increased interest rates by the BoC. As of today, October 27, 2025, the USD/CAD pair is struggling below the 1.3950 threshold, facing pressure similar to previous cycles. The main factor is growing speculation that the US Federal Reserve will start an easing cycle in the first quarter of 2026. Recent data shows that Q3 2025 GDP growth has slowed to 1.1%, fueling expectations of rate cuts. The CME FedWatch Tool currently shows a 75% probability of a rate cut by March 2026, a significant increase in just a month. This shift reflects a cooling US labor market, with the latest jobs report indicating only 160,000 new jobs added, which is lower than expected. This situation makes holding US dollars less appealing, putting downward pressure on the USD/CAD pair.

Canadian Economic Stability

In Canada, economic conditions seem stable, which is good for the loonie. WTI crude oil prices have been steady around $82 per barrel throughout October 2025, providing support for Canada’s exports. This stability contrasts with the volatility seen during the Trump administration’s trade disputes, where sudden tariff announcements created uncertainty for the Canadian dollar. We are witnessing familiar patterns where differences in central bank policies are central to the currency pair’s movements. Unlike the abrupt trade conflicts of the late 2010s, the current situation is gradually influenced by macroeconomic data. The US-Mexico-Canada Agreement (USMCA) has established a more predictable trade atmosphere, making interest rate differences the main catalyst. For derivative traders, this outlook suggests preparing for further USD weakness against the CAD in the upcoming weeks. Buying USD/CAD put options with strike prices below 1.3900 could be an effective way to benefit from this anticipated decline. Key support levels to watch are around 1.3850, a price point tested earlier this year in July 2025. Another strategy is to use futures markets to establish short positions on the USD/CAD pair, anticipating a drop toward last summer’s lows. Traders should keep an eye on upcoming inflation data from both countries, as any surprises could shift the timelines for central bank actions. However, the current momentum suggests the easiest path is downward for the pair as we approach the end of the year. Create your live VT Markets account and start trading now.

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