Insights 
VT 
The USD/CAD pair remains stable below 1.4000 as the US Dollar steadies ahead of US inflation data. Canadian retail sales increased by 1.0% in August, but preliminary figures for September show a 0.7% decline, indicating slowing momentum.
USD/CAD moved slightly upwards after previous declines, trading near 1.3994, as the US Dollar showed mild support. The US Dollar Index dipped to around 99.00 after reaching a session high of 99.14, with cautious market sentiment and rising US Treasury yields affecting gains.
Canadian And Global Market Influences
In Canada, retail sales rose 1.0% month-on-month in August, driven by autos and merchandise, while September projections suggest a decline. Oil prices, though rebounding, offered limited support to the Canadian Dollar, with WTI crude rising by over 3.5% to $61.50 per barrel after new US sanctions on Russian energy firms.
Chinese oil firms ceased Russian crude purchases, wary of Western sanctions, fuelling expectations of tighter market conditions. Kuwait’s Oil Minister anticipates price rises and notes shifting demand towards the Gulf, readying OPEC to adjust output if needed. Meanwhile, US-China trade talks and the government shutdown impact sentiment, with focus shifting to upcoming CPI data as markets anticipate a rate cut by the Fed.
Looking back, we can see the market was right to price in a 25-basis point cut at the October 29-30 Federal Reserve meeting. However, with the latest US Consumer Price Index (CPI) data for September showing headline inflation still at a stubborn 3.1% year-over-year, that cut now seems like a one-off. The focus for the coming weeks is therefore on a potentially more hawkish Fed, which supports a stronger US Dollar.
Canadian Dollar Outlook And Trading Strategies
The outlook for the Canadian Dollar is less certain, with the Bank of Canada holding its policy rate steady. Canada’s own inflation has cooled to 2.5%, and recent GDP figures showed growth slowing to an annualized rate of just 0.8% in the third quarter. This policy divergence is creating upward pressure on the USD/CAD pair, which we’ve seen climb from below 1.4000 to around 1.4150 today.
The support for the loonie from oil prices has also weakened since earlier in the month. West Texas Intermediate (WTI) crude has slipped from over $61 to trade near $58 a barrel. This comes as initial fears over Russian sanctions have subsided and OPEC+ has signaled a willingness to ensure market stability, capping the upside for the commodity.
Given this backdrop, traders should consider strategies that benefit from further USD/CAD strength or increased volatility. Buying call options on USD/CAD with strike prices around 1.4250 or 1.4300 for the coming weeks offers a way to profit from expected U.S. dollar gains. Alternatively, for those expecting sharp moves around upcoming data releases, a long straddle could capture a significant price swing in either direction.
