Insights 
VT 
USD/CAD trades at 1.3980 amid Monday’s Asian hours after losing ground following US Dollar challenges. The decline comes as market predictions indicate a 97% chance of a Fed rate cut in October and 96% in December, prompted by softer US inflation data.
The US BLS reported a 3.0% YoY rise in September’s CPI, below the 3.1% expected, with a monthly increase of 0.3%. The core CPI rose 0.2% month-over-month and 3.0% annually. US Dollar losses may be limited by easing US-China trade tensions, with potential agreements between President Trump and President Xi Jinping.
Impact Of Trade Relations
US Treasury’s statement eases concerns with China purchasing soybeans and lifting export controls, while tensions with Canada escalate as US tariffs increase by 10%. Canada’s economy and its currency are influenced by factors like BoC interest rates, oil prices, and inflation.
Oil price fluctuations notably impact CAD, being Canada’s primary export. Higher oil prices usually boost CAD due to increased trade balance strength. Economic indicators such as GDP and employment data also influence CAD, with stronger economic performance attracting more investment and potentially leading to increased interest rates by the BoC.
As of today, October 27, 2025, we are seeing the USD/CAD pair struggling below the 1.3950 mark, facing pressure similar to past cycles. The primary driver is renewed speculation that the US Federal Reserve will begin an easing cycle in the first quarter of 2026. Recent US data showing Q3 2025 GDP growth slowing to 1.1% has intensified these bets on rate cuts.
The CME FedWatch Tool currently shows the market is pricing in a 75% probability of a rate cut by March 2026, a significant shift over the last month. This reflects a cooling US labor market, with the last jobs report adding a lower-than-expected 160,000 jobs. This environment makes holding US dollars less attractive, putting downward pressure on the USD/CAD pair.
Canadian Economic Stability
On the Canadian side, conditions appear relatively stable, which supports the loonie. WTI crude oil prices have remained resilient, hovering around $82 per barrel throughout October 2025, providing a supportive backdrop for Canada’s exports. This contrasts with the past, such as during the Trump administration’s trade disputes, when unpredictable tariff announcements created volatility for the Canadian dollar.
We are seeing echoes of past patterns where central bank policy divergence becomes the main story for this currency pair. Unlike the sudden trade spats of the late 2010s, the current dynamic is a slower grind based on macroeconomic data. The US-Mexico-Canada Agreement (USMCA) has created a more predictable trade environment, leaving interest rate differentials as the key catalyst.
For derivative traders, this outlook suggests positioning for further USD weakness against the CAD in the coming weeks. Buying USD/CAD put options with strike prices below 1.3900 could be a straightforward way to capitalize on this expected move. Key support levels to watch are around 1.3850, a level tested earlier this year in July 2025.
Another strategy involves using futures markets to establish short positions on the USD/CAD pair, anticipating a move toward those summer 2025 lows. Traders should monitor upcoming inflation data from both countries, as any surprise could alter central bank timelines. However, the prevailing momentum suggests the path of least resistance is downward for the pair heading into the end of the year.
