Insights 
VT 
USD/CAD experienced a rise above 1.3950 during Monday’s Asian session, following better-than-expected Canadian GDP growth at 2.6% in Q3. The Canadian data reduced expectations of further interest rate cuts by the Bank of Canada.
In the US, the potential nomination of Kevin Hassett for Fed Chair suggested possible dovish policies, impacting the US Dollar. An 87% probability of the Fed cutting rates by 25 basis points at its December meeting has increased according to the CME FedWatch tool.
The Canadian Dollar’s Value
The Canadian Dollar’s value is influenced by factors such as the level of interest rates determined by the Bank of Canada, Canada’s oil exports, and overall economic health. Recent strong GDP data has bolstered the CAD, while key macroeconomic indicators also play a role in shaping its trajectory.
Higher oil prices tend to support the Canadian Dollar due to Canada’s reliance on oil exports. Additionally, macroeconomic data releases can significantly impact the CAD, with positive economic health promoting a stronger currency. The Bank of Canada aims to maintain inflation within a specific range, influencing interest rates and subsequently the strength of the Canadian Dollar.
The current situation suggests the US Dollar may weaken against the Canadian Dollar in the coming weeks. We see the Federal Reserve is expected to cut interest rates, while the Bank of Canada is likely to hold steady due to a surprisingly strong economy. This divergence in policy often leads to a lower USD/CAD exchange rate.
On the US side, we are watching for signs of economic slowing, which would support the case for a rate cut. For example, throughout 2023, the US ISM Manufacturing PMI consistently remained below 50, indicating contraction, and if today’s report continues that trend, it will fuel expectations for Fed easing. The market is already pricing in an 87% chance of a rate cut next week, which is a very strong signal.
Canada’s Economic Strength
Canada’s economy, however, is showing remarkable strength, which should support the Loonie. The reported 2.6% annualized GDP growth for the third quarter of 2025 is a significant turnaround from the 1.1% contraction we saw back in the third quarter of 2023. This robust performance makes it unlikely that the Bank of Canada will follow the Fed in cutting rates soon.
Another key factor supporting the Canadian Dollar is the price of oil, Canada’s largest export. West Texas Intermediate (WTI) crude oil has been trading firmly above $80 per barrel, a level that provides a strong tailwind for the Canadian economy and its currency. A stable or rising oil price will likely add further downward pressure on the USD/CAD pair.
Given this outlook, we should consider strategies that benefit from a falling USD/CAD. Buying put options on the pair could be a prudent move, allowing us to profit from a potential decline while limiting our risk to the premium paid. Key events to watch this month will be today’s US manufacturing data and the Federal Reserve’s interest rate decision next week.
