Insights 
VT 
The USD/CAD pair falls below 1.4050, impacted by dovish statements from the US Federal Reserve. Fed Chair Jerome Powell indicated another 25-basis-point rate cut is expected in October. The pair recently traded around 1.4030, following comments from Fed officials. Boston Fed President Susan Collins suggested some scenarios might keep rates steady despite easing. The CME FedWatch Tool shows a 94% likelihood of a rate cut in October and a 93% chance in December.
The Canadian Dollar faces pressure as oil prices continue to weaken. West Texas Intermediate (WTI) crude trades around $58.20, as concerns about a future oil surplus emerge. The Canadian Dollar’s value is influenced by oil prices, as the commodity is Canada’s primary export. The currency is also affected by the Bank of Canada’s interest rate policies, economic health, inflation, and the Trade Balance. Tightening credit conditions by the Bank of Canada generally support the CAD. Economic indicators such as GDP and employment influence the currency’s direction, with stronger data benefiting the CAD. Conversely, weak data may devalue the Canadian Dollar.
Impact Of Federal Reserve Policies
The Federal Reserve’s dovish tone is setting the market’s direction for the next few weeks. With Fed Chair Powell signaling another rate cut this month, we see markets have already priced in a 94% chance of a 25-basis-point reduction. This puts immediate, sustained pressure on the US Dollar.
This sentiment was reinforced by the latest Non-Farm Payrolls report from early October, which came in at just 85,000, well below the 150,000 we had forecasted. This weak labor data gives the Fed a clear runway to ease policy further. We believe this makes shorting the US Dollar against certain currencies an attractive proposition.
However, the Canadian Dollar faces its own significant headwinds, preventing it from fully capitalizing on USD weakness. Crude oil, a key driver for the CAD, is struggling to hold its ground with WTI trading near $58 a barrel. The recent International Energy Agency forecast of a major supply surplus in 2026 is weighing heavily on long-term sentiment.
Last week’s Energy Information Administration (EIA) report showed a surprise build in US crude inventories of 3.1 million barrels, further confirming the oversupply narrative. This data point suggests that any rally in oil prices will likely be short-lived. For traders, this means the CAD may have a ceiling on its potential gains.
Lessons From Historical Oil Price Trends
We are reminded of the 2014-2016 period when a collapse in oil prices sent USD/CAD soaring from below 1.10 to over 1.46. While the Fed’s policy is different now, it shows how profoundly oil weakness can overwhelm other factors for the Canadian Dollar. This history suggests caution for anyone aggressively buying the CAD.
Given these opposing forces, we believe options strategies are particularly useful right now. Buying a straddle or strangle on USD/CAD could profit from a significant breakout if one of these narratives finally dominates the other. For those who see the pair remaining range-bound, selling iron condors could be an effective way to collect premium.
The 1.4050 level in USD/CAD remains a key technical barrier to watch in the coming weeks. A decisive break above it could signal that oil’s weakness is overpowering the Fed’s dovishness. We are also closely watching the upcoming CPI inflation reports from both Canada and the US, as any surprise could shift central bank expectations.
