Insights 
VT 
USD/CAD remains defensive as recovering Oil prices support the Loonie while subdued USD demand persists. The pair trades with a negative bias for the second day, hovering around 1.4000, just below April highs.
Crude Oil prices opened positively, recovering from a five-month low due to a softer stance from the US on China tariffs. This supports the Canadian economy and the Loonie, alongside a surprising 60,400 job additions in Canada reported for September.
Weak USD Demand
The US Dollar struggles with weak demand amidst a risk-on market impulse, while expectations of further US interest rate cuts add pressure. The persistent US government closure contributes to a cautious market, limiting USD/CAD pair movement.
Technically, the 200-day SMA provides support at the 1.3980-1.3975 level, signalling buying opportunities, yet US and Canadian holidays contribute to thin liquidity. Key Canadian Dollar drivers include Oil prices, BoC interest rates, trade balance, and economic health.
Inflation and macroeconomic data like GDP and PMIs influence the CAD’s trajectory. Canada’s economy’s strength boosts investment and encourages higher interest rates from the BoC, aiding currency strength, while weak data results in CAD depreciation.
Looking back, it’s interesting to see the USD/CAD pair struggling around the 1.4000 mark during the trade-war uncertainties of the Trump administration. Today, on October 13, 2025, the landscape is quite different, with the pair trading much lower near 1.3550. The core drivers, however, remain remarkably consistent, demanding our close attention.
Role of Oil Prices
The role of oil prices continues to be a major factor for the Canadian dollar. While back then a recovery from five-month lows was noteworthy, WTI crude oil prices today are holding steady around $85 a barrel, providing a much stronger fundamental support for the loonie than we saw years ago. This sustained strength in energy exports has helped keep the Canadian dollar on a stronger footing against the greenback.
We see a significant divergence in central bank policy compared to the past environment of expected Fed cuts. The Bank of Canada has been holding its key interest rate at 4.75% to combat lingering domestic inflation, while last week’s U.S. CPI data came in slightly cooler than expected at 3.1%, fueling speculation that the Federal Reserve may be done with its hiking cycle. This policy difference is putting downward pressure on the USD/CAD pair.
Employment data also tells a compelling story of two different periods. While that strong Canadian jobs report of over 60,000 was a surprise boost back then, the most recent report for September 2025 showed a more sustainable gain of 25,000 jobs, keeping the unemployment rate at a healthy 5.4%. This consistent stability, rather than a one-off surprise, gives us confidence in the Canadian economy’s underlying strength.
For derivative traders, this environment suggests positioning for further, albeit gradual, downside in USD/CAD over the coming weeks. We believe selling call options with a strike price around 1.3700 could be a prudent strategy to collect premium, as a significant rally above that level seems unlikely given the current fundamentals. This approach capitalizes on the view that the pair’s upside is capped.
Alternatively, traders looking for a more direct bearish position might consider buying put options, which would profit from a drop in the pair’s value. With the next Bank of Canada meeting scheduled for October 22, 2025, using a bear put spread could be an effective way to define risk. This strategy allows us to benefit from a potential move towards the 1.3400 level while limiting our maximum loss if the market moves against us.
