Insights 
VT 
The USD/CAD pair remains stable above 1.4000 due to a cautious outlook on US Federal Reserve policy. The US Dollar strengthens amidst a diminishing likelihood of a Federal Reserve rate cut in December. The CME FedWatch Tool indicates a 69% chance of a cut, down from 93% a week ago.
Oil prices, with WTI trading around $61.00 per barrel, influence the Canadian Dollar. OPEC+ plans to pause output increases in Q1 2026, affecting crude prices. Despite the USD/CAD pair’s struggle, the US Dollar gains support as expectations for a December rate cut diminish. The Federal Reserve has lowered its benchmark rate to 3.75%-4.0%.
Fed Policy and Economic Concerns
Fed Chair Jerome Powell mentioned that another December rate cut is uncertain. Economic concerns are heightened by a six-week US government shutdown, amid ongoing congressional deadlocks. Key factors for the Canadian Dollar include Bank of Canada interest rates, Oil prices, and the nation’s economic health.
Interest rates set by the Bank of Canada significantly impact the CAD by influencing lending rates and inflation. Higher Oil prices generally lead to a stronger Canadian Dollar. Economic indicators, including GDP and employment data, also affect the CAD’s value. A robust economy can drive foreign investment and lead to increased interest rates, strengthening the currency.
As of November 3, 2025, we are seeing the USD/CAD pair pivot around the critical 1.4000 level. This is a direct result of a strong US Dollar clashing with the positive impact of higher oil prices on the Canadian Dollar. Derivative traders should be prepared for potential volatility as these two forces battle for dominance.
The US Dollar is finding support because the market is no longer certain the Federal Reserve will cut interest rates in December. After two rate cuts earlier this year, the odds of a third have dropped from 93% to just 69% in a single week. We saw similar rapid repricing of Fed expectations during 2023, which often leads to sharp moves in the dollar.
Oil Prices and Canadian Dollar
On the other side, the Canadian Dollar is being supported by West Texas Intermediate oil holding above $60 a barrel. This strength comes from OPEC+ signaling it will pause production increases in the first quarter of 2026. Recent data from the Energy Information Administration showed US crude inventories unexpectedly fell by 2.1 million barrels, further supporting prices.
A major risk factor is the US government shutdown, which has now entered its sixth week and is halting the release of official economic data. The last Non-Farm Payrolls report before the data halt showed a weaker-than-expected gain of 150,000 jobs. This lack of fresh information makes it difficult to gauge the health of the US economy and could lead to sudden market shifts on any shutdown-related news.
Meanwhile, the Bank of Canada is also a key player, and its policy decisions could create opportunities. With Canada’s latest CPI reading coming in at a sticky 3.1%, still above the BoC’s 2% target, the central bank is unlikely to consider rate cuts. This provides a fundamental level of support for the Canadian dollar against the US dollar.
Given these conflicting signals, traders could consider using options to trade the potential for a breakout. Looking back, we haven’t seen the USD/CAD sustain levels above 1.4000 since the major global risk event in 2020, so a move higher from here would be significant. The implied volatility in options pricing may increase in the coming weeks.
For those expecting US economic fears to grow, buying USD/CAD put options provides a way to profit from a potential drop below 1.4000. Conversely, if you believe the Fed’s cautious stance will continue to dominate, call options would capitalize on a move higher. The key will be watching for any new guidance from Fed officials or a resolution to the government shutdown.
