The Canadian dollar has extended its decline, with 12 of the past 13 sessions moving against it after Canada’s counter-tariffs on CAD $27.6bn of US goods took effect on 8 September. USD/CAD is trading near 1.4150, its highest since mid-July, and is set for a fifth consecutive daily rise as well as a third straight weekly gain. The move has retraced more than four-fifths of the earlier drop from the late-June high to the August low, even as Friday’s range is the tightest of the run. Ottawa’s measures targeted US steel, dairy and electronics, while the currency has borne the clearer adjustment.
Oil-price support has been absent. Brent is up more than 15% in September, yet the Loonie has fallen, and WTI slipped towards $92.00 on Friday following Iran’s Hormuz proposal as USD/CAD pushed higher again. The rate differential remains a central focus: the Fed lifted its policy rate to 3.75–4.00% on 16 September, while the Bank of Canada has held at 2.25% for seven meetings, most recently on 2 September. Canada’s 10-year yield fell to about 3.95% as the US 10-year rose towards 5.2%, leaving a gap of roughly 1.25 points. Trade measures include US tariffs of 50% on goods representing 5.5% of Canada’s exports to the US from 22 August; the BoC next decides on 28 October at 13:45 GMT, with the Fed at 18:00 GMT. Canadian data show 42K jobs lost in August, wage growth of 2.0% YoY, and second-quarter GDP running at a 3.3% annualised pace. Technically, resistance is cited at 1.4150, 1.4200 and 1.4250, with support at 1.4100 and 1.4000; Stoch RSI is near 96.
Trading Strategy and Rate Differentials
We recommend that derivative traders lean long on the USD/CAD pair in the coming weeks, targeting the 1.4200 and 1.4250 resistance levels. The widening interest rate gap, with US 10-year yields near 5.2% compared to Canada’s 3.95%, continues to pull capital heavily into the US dollar. As long as the key support level of 1.4000 holds on a daily closing basis, buying call options or maintaining long futures positions remains the most profitable strategy.
We must caution against trading the Canadian Dollar as a simple proxy for crude oil right now. While Brent crude rallied over 15% this September, the currency pair rose anyway, highlighting a major breakdown in their traditional relationship. Historical data shows that when the US-Canada yield spread widens past 100 basis points, the correlation between the Loonie and oil can drop from its usual 0.7 down to near zero as interest rate policy takes the driver’s seat.
Volatility Outlook and Risk Management
We should actively position for extreme volatility ahead of the dual central bank decisions on October 28, when both the BoC and the Fed announce their rate paths. While Canada’s strong 3.3% annualized second-quarter growth supports a rate hike, weak labor data showing a loss of 42,000 jobs in August makes the BoC’s next move highly unpredictable. Traders can utilize long straddle or strangle option strategies to capture profit from the sharp market swings expected when these decisions drop just hours apart.
We advise buying on minor pullbacks toward the 1.4100 support level to optimize entry pricing, especially since the daily Stoch RSI is currently overstretched near 96. However, we must remain disciplined and exit all bullish positions immediately if USD/CAD closes below the 1.4000 mark. Protecting capital against sudden trade policy shifts or tariff updates will be vital as we navigate these choppy weeks.
