The Canadian Dollar dropped over 0.5% against the US Dollar on Thursday, hitting a 26-week low. Its value has been declining since mid-June, with a total decrease of 3.65%.

Ongoing US government shutdown is affecting market sentiment, leading to a rise in safe-haven flows towards the Greenback. The US Senate remains in political gridlock, affecting the government funding process and impacting the FX market.

Usd Cad Breaks Key Level

The USD/CAD recently traded near 1.4025, breaking through the 1.4000 level. This shift in price action indicates a stronger trend for the US Dollar, surpassing key moving averages.

The Canadian Dollar is influenced by interest rates set by the Bank of Canada, oil prices, economic health, and trade balance. High oil prices generally increase CAD value since petroleum is Canada’s main export.

Inflation and economic data, like GDP and employment figures, also impact CAD. Higher inflation often results in interest rate hikes, attracting more capital inflows and supporting the CAD.

Economic strength benefits the Canadian Dollar as it attracts foreign investment and potentially prompts the Bank of Canada to raise interest rates. Conversely, weak economic data tends to lower CAD value.

Given the US dollar’s strong momentum, fueled by safe-haven buying during the ongoing government shutdown, the path of least resistance for USD/CAD is upward. The break above the critical 1.4000 psychological level suggests this trend has further to run in the coming weeks. We see this as a clear signal that being short the Canadian dollar against its US counterpart is the primary play.

Outlook On Canadian Dollar

This view is strengthened by fresh domestic data released today, October 10th, which showed Canada’s unemployment rate ticked up to 7.3%, missing expectations. This economic softness is happening as WTI crude oil prices have slipped below $75 a barrel, down from over $85 just last month, directly hurting the value of Canada’s main export. The combination of a strong safe-haven currency and a fundamentally weak domestic currency is creating a powerful trend.

For derivatives traders, this points toward buying USD call options or CAD put options with expirations in late November or December 2025. The overbought RSI reading near 70 suggests a short-term pause is possible, and using options allows us to maintain bullish exposure while managing risk against a temporary pullback. This strategy positions us for a move toward the March 2025 highs without being stopped out by near-term volatility.

We are watching the 1.4450 level as a potential target, a price point that brings to mind the risk-off volatility we saw back in early 2020. As long as the USD/CAD pair holds above the former resistance zone around 1.3900, the bullish bias remains firmly intact. Any dips toward that level should be viewed as buying opportunities rather than a change in the prevailing trend.

The widening interest rate differential between the two countries also supports this outlook. Looking back at 2024, the Bank of Canada was still perceived as relatively hawkish. Now, weak economic data has led markets to price out any chance of a rate hike, widening the policy gap in favor of the US dollar.

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