Insights 
VT 
The USD/CAD pair remains steady after a 0.5% increase in the previous session amid declining Oil prices. The drop in West Texas Intermediate (WTI) Oil price to around $61.20 per barrel has put pressure on the commodity-linked Canadian Dollar (CAD).
USD/CAD is trading near a six-month high of 1.4020 as the CAD faces challenges due to lower Oil prices, with Canada being the largest Oil exporter to the US. The pressure on Oil prices eased as geopolitical tensions decreased following the Israel-Hamas ceasefire agreement.
The Greenbacks Advance
The Greenback’s advance halted due to governmental budget deadlocks, affecting the USD/CAD. The pair may strengthen as risk aversion boosts the USD, despite dovish sentiments about the US Federal Reserve’s future policy.
The Canadian Dollar is influenced by the Bank of Canada’s interest rates, Oil prices, Canada’s economic health, inflation, and trade balance. The BoC adjusts interest rates to maintain inflation between 1-3%, impacting CAD value. Higher Oil prices generally boost CAD, given its substantial contribution to Canada’s export economy. Economic data releases such as GDP and employment also influence CAD, as a robust economy boosts CAD demand.
We see the USD/CAD pair holding above the significant 1.4000 level, which is a key psychological and technical mark. This strength has been building for weeks, suggesting that bets against the US dollar in favor of the Canadian dollar have been unsuccessful. This trend is something we must respect in the immediate future.
The sharp drop in WTI crude oil to around $61 a barrel is a major headwind for the loonie, especially after prices were trading in the mid-$70s just a few months ago in mid-2025. Recent data from the Energy Information Administration confirmed a surprise inventory build of 2.1 million barrels last week, adding to this bearish sentiment. This makes it very difficult for us to build a case for a stronger Canadian dollar right now.
Volatility and Interest Rate Predictions
Despite the US dollar’s recent strength, we must consider the dovish signals from the Federal Reserve, which just cut rates last month in September 2025. Derivative markets are pricing in this sentiment, with the CME FedWatch Tool indicating a nearly 60% probability of another rate cut at the November meeting. This expectation could limit how much higher the US dollar can go and introduces potential for volatility.
Given the conflicting signals of a weak Canadian dollar due to oil prices versus a potentially weakening US dollar from Fed policy, implied volatility in USD/CAD options is worth watching. We think traders could consider strategies like straddles or strangles to position for a significant price move in either direction, particularly ahead of the next FOMC decision. These options strategies benefit from uncertainty without requiring a bet on a specific direction.
While the 1.4000 level feels high for the pair, it is important to remember the market stress we saw during the 2020 pandemic, when USD/CAD briefly moved above 1.4600. This historical context suggests that while the current level is elevated, there is precedent for much larger moves. We should therefore be cautious about assuming that this is the absolute peak for the pair.
The key divergence to watch is between a Federal Reserve that is actively signaling more cuts and a Bank of Canada that may be more hesitant to act. If upcoming Canadian inflation data remains firm, the BoC could hold its interest rate steady, creating a policy conflict that continues to favor USD/CAD strength. This interest rate differential is a fundamental driver supporting the US dollar side of the pair for now.
