Insights 
VT 
The USD/CAD pair falls towards 1.4000 due to increased Oil prices, supporting the CAD. US Oil inventories decreased by 2.98 million barrels last week, boosting West Texas Intermediate (WTI) Oil to approximately $57.70 per barrel.
The USD/CAD pair declines for the second consecutive session amid US Dollar concerns over potential delays in economic data due to an ongoing federal government shutdown. The shutdown marks its fourth week, following a recent Senate vote that failed to advance a funding measure.
US Federal Reserve Rate Expectations
A Reuters poll indicates that the majority of economists expect the US Federal Reserve to cut interest rates by 25 basis points in October. 83 analysts forecast two rate cuts this year, while another 32 predict one cut.
Key factors affecting the Canadian Dollar include interest rates, Oil prices, economic strength, and the trade balance. Inflation and positive economic data tend to strengthen the CAD as they may lead the Bank of Canada to increase interest rates. Macroeconomic indicators like GDP and employment data also influence the CAD’s value.
The USD/CAD pair is showing clear signs of weakness, and we should position for a continued move lower from the 1.4000 level. This downward pressure is a two-sided story driven by a stronger Canadian dollar and a weaker US dollar. Our strategy should focus on exploiting this trend in the lead-up to the Federal Reserve’s decision next week.
Strength in the Canadian dollar is coming directly from rising oil prices, with the recent 2.98 million barrel draw in US inventories providing strong support. Looking back, we saw how OPEC+ production discipline throughout 2024 helped establish a floor for crude prices, a trend that continues to support the loonie today. As of October 2025, West Texas Intermediate (WTI) holding near $57.70 makes commodity-linked currencies like the CAD more attractive.
Impact of A Fed Rate Cut
On the other side, the US dollar is weakening because a Fed rate cut on October 29th is almost guaranteed. Data from September 2025 showed US headline inflation cooled to an annual rate of 3.1%, giving the Fed ample reason to ease policy amid uncertainty from the ongoing government shutdown. This widespread expectation of looser monetary policy is reducing the appeal of holding US dollars.
Given this strong directional view, we should consider buying USD/CAD put options with expirations in November. This approach allows us to profit from a drop below 1.4000 while strictly limiting our maximum loss to the premium paid for the options. This is a prudent way to trade the expected catalyst without exposing ourselves to unlimited risk.
We must also be aware that implied volatility will likely increase as we get closer to the Fed’s announcement, making options more expensive. Historically, we have seen volatility rise into such high-impact events and then collapse immediately afterward. This means timing our entry is critical to avoid overpaying for our positions.
The primary risk to our bearish outlook would be a surprise from the Fed, such as a “hawkish cut,” where they lower rates but signal no further cuts are coming. This could trigger a sharp rally in the US dollar, causing our put options to lose value. We will be watching the Fed’s forward guidance and the weekly oil inventory reports as the main drivers for the pair in the weeks ahead.
