Insights 
VT 
USD/CAD remains steady, having reached a six-month high around 1.0480 earlier. Ongoing US-China trade tensions keep the global risk sentiment fragile. The Canadian Dollar stabilises against the US Dollar, as the Greenback is pressured by the US-China trade disputes and the expectation of more interest rate cuts by the Federal Reserve.
USD/CAD is currently trading near 1.0438 after hitting a high of 1.0479. The trade standoff between the US and China resurfaces, with rising threats and retaliatory measures from both sides. A potential sectoral trade deal between the US and Canada is under scrutiny as tensions over autos, steel, and energy exports continue.
Canadian Dollar and Crude Oil Prices
The Canadian Dollar’s potential increases are limited by the declining Crude Oil prices, with West Texas Intermediate (WTI) nearing a five-month low around $58 per barrel. Traders shift focus to the Bank of Canada, reassessing rate-cut prospects for the October 29 monetary policy meeting following positive labour market data. September’s employment report in Canada revealed a strong job gain, which relieves some pressure on the Bank of Canada. Market odds for a 25-basis-point cut are around 50-55%, down from 70% earlier this month.
Attention is also on the Federal Reserve, with a 97% likelihood of a rate cut at the October meeting, and a 94% probability of a further December cut. Fed officials’ comments suggest possible policy easing, with Governor Waller advocating for rate cuts, citing the unchanged neutral rate and economic resilience.
The US Dollar’s performance against major currencies shows a slight decrease, while it strengthens against the Australian Dollar. The US Dollar change against other currencies, with percentages provided, offers a clear picture of the market’s current state.
USD CAD Outlook Ahead of Central Bank Meetings
We are seeing USD/CAD hold near 1.0438, but this stability seems fragile ahead of central bank meetings in two weeks. Escalating US-China trade tensions have pushed market volatility higher, with the VIX index recently climbing over 18%, reminding us of the uncertainty we saw during the supply chain shocks of 2024. Traders should consider buying options to protect against a sharp move, as a breakout from this range is becoming more likely.
Governor Macklem’s upcoming speech is the next major catalyst, and we will be listening for any dovish hints given the slide in WTI crude to around $58 a barrel. This persistent weakness in oil, a key Canadian export, weighs heavily on the Loonie and could force the Bank of Canada to soften its stance. If Macklem prioritizes growth over inflation, which recent Statistics Canada data showed easing to 2.4%, we could see the odds of an October 29 rate cut jump well above the current 55% pricing.
On the US side, the market is almost fully pricing in a Federal Reserve rate cut on October 30, with a 97% probability baked in. This certainty follows the latest US jobs report, which showed hiring slowing for a second consecutive month, giving dovish officials the data they need to justify easing policy. This expectation is capping any significant upside for the US Dollar, making it difficult for USD/CAD to retest its recent highs near 1.0480.
The key trade revolves around the potential policy divergence between the two central banks at the end of the month. If the Bank of Canada holds rates steady while the Fed proceeds with its expected cut, the interest rate differential will narrow in favor of the CAD, likely sending USD/CAD lower. We are seeing some traders position for this outcome by looking at bearish risk reversals, anticipating a move back toward the 1.0350 support level we saw in early September.
