Insights 
VT 
USD/CAD is trading near 1.4010, with the US Dollar weakened by the US government shutdown. The shutdown has entered its 19th day, with senators unable to resolve the impasse, marking the third-longest funding lapse in US history.
Trade tensions between the US and China could provide some relief, as President Trump suggested potential tariff reductions. US-China trade talks are scheduled to continue, with meetings planned between US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng.
Pressure from Falling Oil Prices
The Canadian Dollar faces pressure from falling Oil prices due to concerns over increased global supply. West Texas Intermediate Oil has seen a dip, trading around $57.00 per barrel, as the International Energy Agency predicts more production from OPEC+ members.
The Canadian Dollar is influenced by several key factors, including interest rates set by the Bank of Canada and Oil prices. A rise in Oil prices often strengthens the CAD, while falling prices have the opposite effect. Inflation and economic data also impact the currency’s value, with strong data tending to boost the CAD.
Fluctuations in these elements affect the CAD’s movement, highlighting the connectedness of global economic factors on currency values.
Looking back at market analysis from several years ago, we see a familiar tension between a politically uncertain US Dollar and a commodity-linked Canadian Dollar. Today, on October 20, 2025, we are witnessing a similar dynamic, though the specific pressures have evolved. The core drivers mentioned then—oil prices, central bank policy, and US political stability—remain the key factors for traders to watch.
The US Dollar’s Current Challenges
The US Dollar is currently facing headwinds from stalled budget negotiations in Washington, creating uncertainty for the markets. The CBOE Volatility Index (VIX), a measure of market fear, has climbed over 15% this month, reflecting trader anxiety over a potential funding lapse. This political friction is weighing on the dollar, making it vulnerable against its major counterparts.
Unlike the environment in early 2019 when WTI crude was struggling near $57, oil prices are now a source of strength for the Canadian dollar. West Texas Intermediate is holding firm above $85 per barrel, supported by the latest EIA report showing US crude inventories drawing down for the fifth consecutive week. This robust energy market provides a strong fundamental tailwind for the loonie.
This divergence is creating opportunities in the options market as the Bank of Canada (BoC) maintains a hawkish tone amid strong economic data. While the Federal Reserve signals caution due to domestic political issues, overnight index swaps are now pricing in a 40% chance of a BoC rate hike by year-end. This policy divergence is a significant factor supporting a lower USD/CAD exchange rate.
Canada’s strengthening economic position is also being confirmed by recent trade data, which shows a trade surplus for the third straight month. According to a recent release from Statistics Canada, this surplus is largely driven by the high value of energy exports. This reinforces the fundamental support for the CAD that was absent during periods of weaker oil prices.
Given these conditions, derivative traders should consider positioning for further downside in the USD/CAD pair in the coming weeks. Buying put options on the pair could offer a defined-risk strategy to capitalize on this trend. Selling out-of-the-money call spreads could also be an effective way to generate income while maintaining a bearish outlook on the pair.
