Insights 
VT 
Impact of Oil Prices and Trade Tensions
The USD/CAD shows a slight increase of 0.20% at 1.4040 but struggles to break the 1.4050 resistance. The Canadian Dollar remains weak against a strengthening USD, driven by the Fed’s cautious stance on further rate cuts. The chances for a 25-basis-point cut in December have decreased to 69% from over 90%.
The US government’s shutdown impacts confidence, reducing interest in commodity-linked currencies like the Canadian Dollar. Meanwhile, declining Oil prices further weaken the Canadian currency. West Texas Intermediate Oil falls to $60.50, impacted by the stronger US Dollar despite OPEC+ halting production hikes until 2026.
Trade tensions between Canada and the US also affect market sentiment. Analysts suggest an appreciation of the Canadian Dollar may take time, given current risks. Attention shifts to the US Institute for Supply Management’s Manufacturing PMI for October, as traditional data releases are stalled by the shutdown.
The US Dollar shows varied performance against major currencies, noted in percentage changes. It was notably stronger against the Swiss Franc and weaker against the Canadian Dollar on the given day.
Given the current pressure on the Canadian dollar, we see the upward trend in USD/CAD likely continuing in the near term. The combination of a strong U.S. dollar and weakening oil prices creates a clear path of resistance for the loonie. This environment suggests that bearish positions on the Canadian dollar are favorable.
Federal Reserve and Strategy Implications
The weakness in oil is a significant factor, with WTI prices sliding toward $60.50 a barrel. This drop comes even after OPEC+ signaled future production discipline, which tells us the market is more focused on immediate demand concerns. The latest U.S. Energy Information Administration (EIA) report showed a surprise inventory build of 2.1 million barrels last week, reinforcing fears of a supply glut and directly hurting the outlook for Canada’s primary export.
On the other side of the pair, the U.S. dollar is gaining support from a more cautious Federal Reserve. After last week’s meeting, the market has lowered the probability of a December rate cut to 69%, a sharp drop from over 90% just a week ago. With recent core PCE inflation holding firm around 2.8% year-over-year, the Fed has little reason to rush into further easing, especially while the government shutdown delays key economic data.
For derivative traders, this situation points toward strategies that profit from a rising USD/CAD exchange rate. We believe buying call options on USD/CAD is a prudent move, allowing for participation in the upside potential while defining risk if the momentum stalls around the 1.4050 resistance level. This strategy is particularly useful given the heightened uncertainty from the ongoing U.S. government shutdown.
Looking back, we have not seen the USD/CAD sustain these levels since the oil price crash in early 2016 and the market panic of March 2020. A decisive break above 1.4050 could signal a move toward the 1.4200 handle in the coming weeks. Therefore, structuring trades that target this next leg higher seems appropriate.
The prolonged government shutdown, now in its sixth week, adds another layer of complexity by increasing market volatility. This makes options a useful tool for managing risk, as the lack of official economic reports means markets will react sharply to the few data points available, such as today’s ISM Manufacturing PMI. We should be prepared for sharp, sentiment-driven moves rather than gradual trends.
