Insights 
VT 
The USD/CAD currency pair remains below its 200-day moving average at approximately 1.3950 after the Bank of Canada reduced its policy rate by 25 basis points to 2.25%. The Bank noted a soft labour market and US trade uncertainties but indicated a pause in further easing, supported by expectations of a stimulative Canadian budget and firm inflation, which bolster the CAD.
Rate Cut Impact
The Bank of Canada cut the policy rate to 2.25%, which was 85% anticipated, emphasising the soft Canadian labour market and the impact of US tariffs on the economy. The Bank intends to maintain the rate at 2.25% if inflation and economic activity meet expectations. It predicts GDP growth at 0.75% SAAR in H2, an increase from 0.2% in H1, and sees core inflation slowing to 2.9% in Q4 from 3.2% in Q3.
The Bank of Canada is unlikely to lower the policy rate below its estimated neutral range of 2.25% to 3.25%, potentially benefiting the CAD. The Canadian government is set to announce a stimulative budget on 4 November, while underlying inflation remains elevated. The FXStreet Insights Team provides market observations and insights from various analysts.
The Bank of Canada delivered a hawkish cut yesterday, trimming its policy rate to 2.25% while signaling it is unlikely to ease further. This action was prompted by a softening labor market, as Canada’s unemployment rate recently rose to 6.4% in the latest data from early October 2025. For now, USD/CAD is holding firm below its 200-day moving average of 1.3950, which is acting as a significant resistance level.
We believe the Canadian dollar will remain supported, as the BOC has moved its policy rate to the low end of what it considers neutral territory. With Canada’s government set to deliver a stimulative budget on November 4 and core inflation still well above target, the case for further rate cuts is weak. This suggests options strategies that bet on USD/CAD failing to break higher in the coming weeks could be favorable.
Options Strategies
Traders should consider selling out-of-the-money USD call options with strike prices above the 1.4000 psychological level. This strategy benefits from both time decay and the pair’s inability to push past the strong technical resistance at 1.3950. The signal that the BOC is now on hold should also help contain volatility, making option-selling strategies more attractive.
The primary risk remains US trade policy, particularly with ongoing reviews of the USMCA that could lead to new tariffs on Canadian goods. However, we saw a similar situation back in 2019 when the US Federal Reserve’s final “insurance” rate cut provided a clear floor for the market. The BOC’s move yesterday feels like a similar signal, providing a clearer path for the coming weeks.
