Insights 
VT 
The Canadian Dollar (CAD) remains steady following a drop through 1.40 amidst widespread US Dollar (USD) gains for the week. CAD is positioned well below its estimated fair value of 1.3790, with the USD close to two standard deviations above its equilibrium estimate and one standard deviation above its 40-day moving average.
There is limited indication of the CAD regaining ground. The Canadian employment report may impact this, with expectations of a modest 5,000 job rebound amidst easier monetary policy, though some forecasts predict a 50,000 job reduction for September. The USD is stable in the low 1.40 range, hovering around the 1.4020 level, its 38.2% retracement from the February to June decline.
Key Levels And Projections
A rise beyond this point could result in the USD extending to the mid-1.41 range. To stabilise the CAD, a USD drop back through the upper 1.38s is necessary. Key support levels for USD are noted at 1.3930 and 1.3880. The overview is provided by selected market observations from internal and external analysts at FXStreet Insights Team.
We are seeing the US dollar hold firm above the 1.40 mark against the Canadian dollar, as the pair is statistically overbought but shows no sign of reversing. This morning’s Canadian employment data for September 2025 confirmed our fears, showing a significant loss of 60,000 jobs, far worse than the modest gain the market had priced in. This weak data gives us little reason to believe the Canadian dollar will find its footing soon.
Given the break above the 200-day moving average and the dismal economic data, traders should consider buying call options on USD/CAD with strike prices in the 1.4100 to 1.4150 range. This strategy allows us to profit from a continued rally towards the mid-1.41s while defining our maximum risk. We would look at expirations in late November or December 2025 to give the trade enough time to play out.
Market Strategies And Considerations
Despite the bullish momentum, we recognize the US dollar is stretched, trading nearly two standard deviations above its recent norm. For those looking to hedge or position for an eventual reversal, buying out-of-the-money put options with strikes around 1.3900 could be a low-cost strategy. This position would benefit from any sharp pullback if the pair fails to hold the 1.40 level.
The policy divergence between central banks is widening, as the US Federal Reserve continues to signal rates will remain elevated to combat a sticky core inflation rate, which was last reported at 3.2%. In contrast, the Bank of Canada is now under immense pressure to ease policy following several weak economic reports. Adding to the pressure on the loonie, WTI crude oil prices have also fallen below $80 a barrel this month, weakening a key support for the Canadian economy.
We should remember past periods of stress, such as in early 2020, when this currency pair surged towards the 1.46 level under similar conditions of US dollar strength and commodity weakness. While we are not forecasting such a dramatic move yet, it shows that a push toward 1.42 in the coming weeks is well within historical precedent. Implied volatility is rising, suggesting the market is pricing in larger price swings ahead.
