The Canadian Dollar (CAD) remains relatively weak but is outperforming several of its G10 counterparts. Despite robust Canadian employment data last week, CAD has faced pressures from the broad strength of the US Dollar (USD).

The US Dollar’s overall trend continues to impact CAD’s performance negatively. Recent tariffs imposed by the US could further dampen CAD sentiment. The current USD/CAD level is significantly above the currency’s fundamental equilibrium, estimated at 1.3782 in their model.

Usd Exceeds Expectations

Despite being well above this value, the USD continues to demonstrate positive momentum. It has exceeded psychological and technical levels, including breaching the 1.40 area and the 200-day moving average (MA) at 1.3973, providing further upward support for the USD.

In the short term, the CAD lacks significant technical defenses against further losses. There is potential for the USD/CAD rate to approach resistance levels in the mid to upper 1.41s, particularly the 50% retracement mark at 1.4167. However, some USD support is noted around the 1.3980/00 range.

The US dollar remains the main force driving the Canadian dollar’s performance, keeping it on the back foot. Even though Statistics Canada reported a robust addition of 45,000 jobs earlier this month on October 10, 2025, it provided little support against the greenback’s broad strength. This pattern is familiar, as we saw a similar trend during the aggressive US Federal Reserve tightening cycle of 2022-2023, where strong domestic data often failed to lift the CAD.

Sentiment is also being weighed down by a renewal of trade disputes, particularly after the US announced new 10% lumber tariffs are now in effect. Historically, these disputes, which have flared up periodically for decades, create headwinds for Canadian exports and investor confidence. The current market reaction confirms that this long-standing issue continues to be a clear negative for the Canadian dollar.

Usd Cad Exchange Rate Concerns

We see the USD/CAD exchange rate as stretched far beyond its fundamental value, trading more than two standard deviations above what our models suggest is fair. Such a significant divergence, which we currently calculate at 1.3782, is excessive and hints that the current rally is overextended. Derivative traders should consider this overvaluation as a signal to prepare for a potential reversal, perhaps by purchasing medium-term put options on the USD/CAD to position for a pullback.

However, the positive momentum for the US dollar is undeniable on the charts right now. The push above the psychological 1.40 level, reinforced by a break of the 200-day moving average at 1.3973, suggests more gains are possible in the immediate future. There is little technical resistance ahead, with a potential test of the 1.4167 area, which marks a 50% retracement of its slide from earlier in the year.

For the coming weeks, this creates a conflict between overstretched fundamentals and strong short-term technicals. Traders could use short-dated call options to ride the current upward momentum while watching for signs of exhaustion. The key support level to watch is the 1.3980/1.4000 zone; a break below this could signal that the bull run is finally losing steam.

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