Insights 
VT 
The Canadian Dollar is under pressure against the US Dollar due to weaker domestic sentiment and decreasing oil prices. The USD/CAD trades at around 1.4035 amidst cautious optimism over US-China trade discussions.
The Bank of Canada’s Q3 Business Outlook Survey shows a decline in business confidence, with the BOS Indicator dropping to -2.8 from -2.4. About 37% of firms intend to increase employment, but fewer plan to raise prices, and 33% foresee a recession within a year.
Industrial Product Price Index
Canada’s September Industrial Product Price Index rose 0.8% month-on-month, boosted by metals and energy product prices. The Raw Materials Price Index went up by 1.7%. A 70% probability exists for a 25-basis-point rate cut by the BoC at its October meeting.
The US Dollar is supported by soft tones from President Donald Trump on China ahead of trade talks, while expectations of interest rate cuts by the Federal Reserve limit its upside. Traders anticipate 25-basis-point cuts in both October and December monetary policy meetings. The US Dollar was strongest against the British Pound today, according to the currency heat map showing percentage changes against other major currencies.
The Canadian Dollar is weakening against the US Dollar, with the USD/CAD exchange rate currently hovering around 1.3650. This pressure comes from a mix of disappointing Canadian economic data and a recent dip in oil prices. We are seeing a familiar pattern where concerns over Canada’s domestic growth are weighing on the currency.
The Bank of Canada’s most recent Business Outlook Survey from early this month showed a clear downturn in sentiment, reminiscent of similar periods of weakness we saw years ago. The survey indicated that businesses are scaling back hiring plans and investment intentions for the coming year. This has reignited market speculation that the Bank of Canada, which has held its policy rate at 4.25% since early 2024, may be forced to consider a rate cut sooner than expected.
Interest Rate Probabilities
Last week’s inflation data supports this view, as the September 2025 Consumer Price Index (CPI) fell to 1.9%, just below the central bank’s 2% target. Overnight index swaps are now pricing in a 40% probability of a 25-basis-point rate cut by the Bank of Canada before the end of the year. Traders will be closely watching for any dovish signals from the bank’s upcoming statement.
In contrast, the US Federal Reserve has maintained a more resolute stance, holding its key interest rate in the 5.00% to 5.25% range. This interest rate differential continues to make the US Dollar more attractive for investors seeking higher yields. Recent US jobs data was stronger than anticipated, reinforcing the Fed’s position to hold rates steady for now.
Global factors are also playing a role, with ongoing US-China tensions over semiconductor trade creating a cautious market mood that typically benefits the US Dollar as a safe-haven currency. However, a slowing in US manufacturing surveys from last month is limiting the dollar’s potential for a major breakout. This creates a complex picture where the dollar is strong, but not without its own vulnerabilities.
Given the bearish outlook for the Canadian dollar, we believe traders should consider strategies that benefit from a rising USD/CAD. Buying call options with a strike price around 1.3700 for December expiry could offer upside exposure if Canadian economic weakness persists. Alternatively, implementing a bull call spread would allow traders to profit from a moderate move higher while capping both potential profit and risk.
