Insights 
VT 
USD/CAD decreases to about 1.4040 as the US government shutdown continues unabated. The Senate’s inability to pass a Republican funding bill prolongs the shutdown while lower crude oil prices put pressure on the Loonie, helping minimise the pair’s losses.
Trade tensions and the US economic slowdown contribute to the weakening of the US Dollar against the Canadian Dollar. The ongoing trade war with China and possible Federal Reserve rate cuts further impact the USD, with the government shutdown expected to last into the following week.
Impact Of Crude Oil On Canadian Dollar
Crude oil value impacts the Canadian Dollar, as it is Canada’s major export. Lower crude prices can reduce CAD value, despite potential Fed rate cuts which could further depreciate the USD.
The Canadian Dollar is driven by factors including Bank of Canada interest rates, oil prices, and Canada’s trade balance. Economic data such as GDP and employment figures also play a role, affecting CAD positively if the data is strong.
Bank of Canada’s interest rate adjustments influence the CAD, with higher rates generally strengthening it. Inflation and economic health indicators can lead to monetary policy changes, attracting global capital and influencing the Canadian Dollar’s value.
As of today, October 17, 2025, we are seeing the USD/CAD pair soften below the 1.4050 mark. This movement is largely driven by persistent issues within the US, creating a bearish outlook for the US dollar. Derivative traders should be positioning for potential further downside in the pair.
US Government Shutdown And Its Effects On The Dollar
The ongoing US government shutdown is a significant factor weighing on the dollar. We saw a similar situation during the 35-day shutdown back in 2018-2019, which led to increased market volatility and initial weakness in the greenback. With the Senate again failing to pass a funding bill, uncertainty is high, and this typically pressures the currency of the affected country.
Federal Reserve policy expectations are also contributing to USD weakness, making short positions on the dollar more attractive. Recent US labor market data for September showed non-farm payrolls came in at 155,000, well below the anticipated 210,000, reinforcing the case for a rate cut at the Fed’s next meeting. This growing policy divergence with other central banks is a key catalyst for traders.
For those trading options, this uncertainty has pushed one-month implied volatility for USD/CAD up to nearly 8.5%, higher than its three-month average. This suggests that while buying puts on the pair could be profitable if the dollar falls, the strategy is becoming more expensive. Traders should therefore carefully weigh the cost of premiums against the potential payoff.
However, the Canadian dollar has its own headwinds that could limit how far USD/CAD falls. The price of WTI crude oil has slipped to around $74 a barrel, down over 10% since late August 2025. As Canada is a major oil exporter, this sustained weakness in energy prices puts a cap on the loonie’s strength.
The Bank of Canada’s policy also provides a crucial counterpoint for traders to consider. While the Fed is signaling cuts, Canada’s latest inflation report for September showed a headline CPI of 2.6%, which is still above the central bank’s target. This makes the Bank of Canada less likely to cut rates as aggressively as the Fed, a divergence that favors the Canadian dollar.
Given this environment, a viable strategy for derivative traders could be to implement a bear put spread on the USD/CAD. This allows one to profit from a moderate decline in the pair while capping the initial cost, which is beneficial in a high-volatility environment. The strategy would benefit from the expected US dollar weakness while acknowledging the floor created by lower oil prices.
