Insights 
VT 
The Canadian Dollar has weakened after President Trump announced the end of trade talks with Canada, according to Scotiabank’s strategists. This response followed an Ontario government advertisement critical of US tariffs, but market impacts have remained within recent USD/CAD ranges.
August’s Retail Sales data met expectations with a 1% rebound, but preliminary September data suggests a decline, indicating slow growth. This situation may prompt the Bank of Canada to consider a 25bps rate cut in the upcoming policy decision.
Market Trends And Analysis
The recent increase in USD suggests potential support, though its rise from the mid-month high is not confirmed by charts. Seasonal trends could negatively affect the CAD, with USD/CAD resistance levels noted at 1.4035 and 1.4080.
Other market updates include the Dow Jones hitting a record high due to softer inflation data. Gold has rebounded as the likelihood of a Fed rate cut increases, and the AUD/USD has remained stable amid mixed US data. In cryptocurrency news, Bitcoin, Ethereum, and XRP gain momentum with steady retail interest.
JPMorgan plans to introduce Bitcoin and Ethereum-backed loans for institutions by year-end, while forex traders seek strategic insights in the changing market.
With President Trump ending trade talks, we are seeing the Canadian dollar soften, pushing the USD/CAD exchange rate toward the 1.3980 mark. However, the market reaction has been limited, suggesting traders see this as political posturing rather than a complete breakdown of the relationship. This view is supported by memories of the hardline tactics used during the CUSMA negotiations back in 2018, which ultimately led to a deal.
Bank Of Canada And Market Reactions
The focus is now squarely on the Bank of Canada’s policy meeting next week, especially after preliminary data showed a drop in September consumer spending. Overnight index swaps are now pricing in an 85% probability of a 25 basis point interest rate cut, a move that would further weigh on the CAD. The sluggish growth outlook combined with new trade uncertainty gives the central bank a clear reason to act.
For derivatives traders, this presents a nuanced opportunity, as broader market fear remains low with the VIX holding steady near 16. One-month implied volatility for USD/CAD has ticked up to 7.8%, but six-month forward volatility remains anchored near 6.5%, indicating the market expects this tension to be short-lived. This suggests strategies that capitalize on a short-term spike in volatility while maintaining a view that the currency pair will stay within a broader range.
The immediate technical resistance for USD/CAD lies at 1.4035 and then 1.4080, levels that will be tested if the US dollar continues its intraday gains. We must also consider the strong seasonal headwind for the Canadian dollar that typically emerges at this time of year. Looking back over the last 15 years, the CAD has depreciated against the USD in November and December nearly 70% of the time.
This dynamic is happening even as softer US inflation data has pushed the Dow Jones to a new record high and solidified bets for a Federal Reserve rate cut. The US Dollar Index (DXY) remains firm above 107, yet expectations of future easing from the Fed could cap its strength. The ongoing government shutdown in the US adds another layer of uncertainty, complicating any long-term directional trades.
