The USD/CAD pair has been trading around 1.3740 during Asian hours, continuing its losses for a second consecutive session. This depreciation is attributed to the US Dollar’s struggles due to anticipated Federal Reserve policy easing.
Federal Reserve Member Stephen Miran has indicated recent data aligns with his economic views, predicting no near-term recession. Meanwhile, the US GDP Annualized for Q3 is expected to show growth at 3.2%, slower than the previous quarter’s 3.8%.
Influence Of Rising Precious Metals
The pair’s movement is also influenced by rising precious metals, reflecting safe-haven demand amidst US-Venezuela tensions. Higher oil prices are supporting the commodity-linked Canadian Dollar, as Canada is the US’s largest crude oil supplier.
West Texas Intermediate oil is trading at approximately $57.90 per barrel, with prices rising due to geopolitical risks. Factors such as the Bank of Canada’s interest rates, Canada’s economic health, inflation, and trade balance play roles in the CAD’s valuation.
Overall, oil prices, inflation data, and macroeconomic releases like GDP and employment figures are pivotal elements in determining the Canadian Dollar’s value. These variables collectively influence Canada’s currency outlook and policy directions.
We’re seeing a familiar setup in USD/CAD, reminiscent of the period back when the pair dipped below 1.3750 on Federal Reserve easing expectations. Today, with the pair trading near 1.3550, the dynamics have shifted but the core drivers remain the same. The key difference now is the market’s focus on the *next* move from central banks after a period of stabilization.
Shift In Market Dynamics
While we saw Fed officials in the past advocate for easing to avoid recession, the narrative has evolved significantly by late 2025. The Federal Reserve is now holding the federal funds rate at 4.75% as recent data showed Core PCE inflation still stubbornly above target at 3.1%. This persistence suggests that any further easing is off the table, creating a supportive floor for the US Dollar.
On the Canadian side, the situation is more delicate, with the Bank of Canada holding its policy rate at 4.5%. With Canada’s latest GDP growth figures for Q3 2025 coming in at a sluggish 1.2%, we believe the BoC has a more dovish tilt than the Fed. This interest rate differential, favouring the US, should cap significant Canadian Dollar appreciation in the near term.
We must consider the significant shift in oil prices, which is the primary support for the loonie. Back when those reports surfaced, WTI crude was trading near $58 a barrel; today it is holding firm above $85. This strength comes from ongoing supply discipline from OPEC+ and persistent geopolitical risks in Eastern Europe, a theme we’ve seen evolve over the past few years.
Given these crosscurrents—a hawkish Fed versus elevated oil prices—we anticipate heightened volatility in the coming weeks. For derivative traders, this is not a time for simple directional bets; instead, consider buying straddles or strangles to profit from a significant move in either direction. Specifically, purchasing February 2026 call options on USD/CAD could be a cost-effective way to position for potential US dollar strength if oil prices begin to falter.
