Insights 
VT 
The Canadian Dollar (CAD) remains steady amid quiet trading conditions. Stocks stabilising and a slight decrease in market volatility, indicated by the VIX dropping below 20, provide some relief for the CAD as the US Dollar (USD) experiences a general drift.
External influences primarily steer CAD movement in the short-term, as economic signals remain unclear. Bank of Canada’s Senior Deputy Governor Rogers has called for measures to enhance domestic productivity.
Technical Analysis
The USD’s recent gains position it above the projected equilibrium rate of 1.3783, maintaining a value about two standard deviations higher than estimates for fair value. USDCAD showed a minor peak yesterday at 1.4080, which now acts as resistance.
The intraday chart indicates a bearish outside range signal, while the daily chart suggests a bearish “shooting star” candle over the session. Trend strength favours the USD, but the USD appears technically overbought on the daily chart. Initial support levels for the USD are at 1.3970/75 and 1.3930.
Given that the US dollar appears technically overbought, we believe the recent run-up to 1.4080 may represent a short-term peak. Bearish signals, like the “shooting star” candle on the daily chart, suggest that momentum is fading. This technical exhaustion presents an opportunity for traders expecting a reversal.
The Canadian dollar’s heavy undervaluation is becoming more pronounced, especially with recent fundamental shifts supporting the currency. Last week’s data showed WTI crude oil prices stabilizing above $92 per barrel, improving Canada’s terms of trade. This strength in commodities was a key factor missing during the loonie’s weakness earlier in 2025.
Domestic Economic Picture
Domestically, the economic picture in Canada is steadying, giving the Bank of Canada less reason to lag behind other central banks. The latest figures for September 2025 showed core inflation holding at 2.2%, well within the BoC’s target range. This reduces the likelihood of rate cuts and provides a solid base for the currency.
Conversely, recent data from the United States hints at a potential slowdown, which could weaken the US dollar. The most recent Non-Farm Payrolls report added only 160,000 jobs, missing forecasts and prompting markets to price in a higher probability of a Federal Reserve rate cut in early 2026. This potential policy divergence should put downward pressure on the USD/CAD pair.
Therefore, we see value in derivative strategies that profit from a decline in the USD/CAD exchange rate, such as buying put options with strike prices below the 1.3930 support level. This situation is reminiscent of the market in late 2022, when a similarly overbought USD peaked near 1.39 before correcting lower over the subsequent months. A gradual move back towards the pair’s estimated fair value of 1.3783 seems plausible in the coming weeks.
