Insights 
VT 
The USD/CAD remains stable around 1.4010 during Asian hours on Monday, following two days of gains. This stability is influenced by stronger Oil prices boosting the Canadian Dollar. Canada, as the largest crude exporter to the US, benefits from such developments. West Texas Intermediate Oil prices hold around $61.00 per barrel. Crude prices rise after OPEC+ indicated it would pause output increases in Q1 2026.
The USD/CAD may continue its trend as the US Dollar gets support from reduced expectations for a December rate cut. This follows the Federal Reserve’s decision to lower its benchmark rate to a range of 3.75%-4.0%. Fed Chair Powell mentioned that another December rate cut is uncertain, and officials may adopt a wait-and-see approach. Fed funds futures now show a 69% chance of a December cut, down from 93%.
US Government Shutdown Concerns
Prolonged US government shutdown concerns traders, with the impasse in its sixth week caused by a deadlock over a funding bill. Key factors driving the Canadian Dollar include Bank of Canada’s interest rates, Oil prices, economic health, inflation, and trade balance. The US economy also plays a role, with economic data influencing the Dollar’s value. Strong data supports the CAD, while weak data may lead it to fall.
Given the current tension in USD/CAD around the 1.4010 mark, we see a classic standoff between opposing economic forces. The Canadian dollar is finding support from strong oil prices, with WTI holding above $61 a barrel after OPEC+ signaled a pause in output hikes for early 2026. Last week’s EIA report showed another drawdown in crude inventories, reinforcing the supply tightness that benefits the loonie.
On the other hand, the US dollar is being propped up by a more cautious Federal Reserve. After cutting rates twice this year, the Fed is now signaling a potential pause, and market odds for a December cut have fallen to 69%. This situation is complicated by the six-week US government shutdown, which has delayed key data and is why we still haven’t seen the October jobs report that was due last Friday.
Impact on Derivative Traders
This creates a policy divergence, as Canada’s most recent inflation data in October came in hotter than expected, suggesting the Bank of Canada will hold rates steady for the foreseeable future. This contrasts with the Fed’s easing cycle, which generally favors a stronger CAD over the medium term. We saw a similar dynamic play out in the 2022-2023 period when aggressive BoC hikes initially outpaced the Fed, strengthening the Canadian dollar.
For derivative traders, this environment of high uncertainty suggests a rise in implied volatility over the coming weeks. With the pair pinned at a key psychological level and driven by conflicting catalysts, strategies that profit from a large price swing are attractive. We should consider buying USD/CAD straddles or strangles with expirations in late December to capture a potential breakout following the next Fed meeting or any resolution to the government shutdown.
