Insights 
VT 
Key Drivers of the Cad Include the Boc’s Interest Rates
Key drivers of the CAD include the BoC’s interest rates, which aim to keep inflation between 1-3%, and the price of Oil, Canada’s primary export. Macroeconomic indicators like GDP, employment, and consumer sentiment also impact CAD’s value. A strong economy could lead to higher interest rates, strengthening CAD, whereas weak economic data might result in a decline.
The BoC influences CAD through its interest rate policies, with higher rates typically benefiting the currency. Economic data releases, including GDP and PMI indices, play a critical role in shaping the Canadian Dollar’s trajectory. An increase in Oil prices usually boosts the CAD, as it is a major export for Canada.
The latest Canadian inflation data, coming in hotter than expected at 2.4% for September, puts the Bank of Canada (BoC) in a difficult position. This persistent inflation complicates their ability to lower interest rates, even as the economy shows signs of weakness. Last month’s data from Statistics Canada confirmed this slowdown, with Q2 2025 GDP growth being a meager 0.8% on an annualized basis.
We See a Clear Divergence in Central Bank Policy
We see a clear divergence in central bank policy that is driving the currency markets. While overnight index swaps are pricing in a 65% chance of a BoC rate cut in December, the U.S. Federal Reserve is signaling a “higher for longer” stance, with futures markets not expecting a cut until mid-2026. This policy gap is the primary force pushing the US Dollar higher against the Canadian Dollar.
Looking at the USD/CAD chart, the uptrend is well-established, supported by the recent “golden cross” formation from early in the month. We see significant resistance forming around the 1.4100 level, which has capped recent rallies. Any pullbacks toward the support zone between 1.3900 and 1.3950 should be viewed as potential opportunities to join the trend.
We must also acknowledge that oil, a key Canadian export, is providing little support. WTI crude has struggled to hold the $85 per barrel level amid renewed concerns over slowing global demand, particularly out of Asia. This weakness in energy markets directly translates to pressure on the loonie, making it harder for it to gain ground.
For derivative traders, this outlook favors strategies that profit from further USD/CAD strength. Buying call options on USD/CAD with expiry dates in the coming months allows for participation in a continued move higher. A bull call spread could also be an effective strategy to reduce premium costs, targeting a move towards that 1.4100 resistance level while defining risk.
