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USD/CAD Experiences A Decline
The Bank of Canada is also set to cut rates by 25 points but maintains a more favourable rate outlook with a real yield against a 2.4% CPI. Analysts foresee this as the likely end of the BoC easing cycle, given moderate inflation and unemployment rates.
The Canadian Dollar is influenced by factors including the BoC’s interest rates, oil prices, economic health, and trade balance. Higher oil prices and positive economic data can strengthen CAD by attracting investment and potentially leading to higher interest rates. Conversely, weak economic data may cause the CAD to decline.
Looking back at the market conditions from that period in late 2019, we can see the Federal Reserve was in an easing cycle, with markets expecting rates to fall to 3.75-4.00%. That environment, with both the Fed and the Bank of Canada cutting rates, presented a different set of challenges. Today, on October 29, 2025, the dynamic has completely shifted.
The Federal Reserve is now holding its benchmark rate steady in the 4.50-4.75% range, a decision reinforced by the latest CPI data showing core inflation stubbornly holding at 3.2%. We see that unlike the past, the Fed’s primary concern is not stimulating growth but ensuring inflation is fully contained. This hawkish hold suggests the US dollar will remain supported by high interest rates for the foreseeable future.
The Bank Of Canada’s Economic Picture
In contrast, the Bank of Canada is facing a weaker economic picture, with recent GDP figures for the third quarter of 2025 showing a slowdown to just 0.9% annualized growth. The BoC has signaled a more dovish stance, leading us to believe they may be forced to cut rates before the Fed. This growing policy divergence is a key factor that should push the USD/CAD pair higher.
For traders, this outlook suggests positioning for a stronger US dollar against the Canadian dollar in the coming weeks. We believe buying USD/CAD call options with expiries in December 2025 or January 2026 offers a good way to profit from this expected upward move. These options provide upside potential while clearly defining the maximum risk on the trade.
We must also consider the price of oil, which has been a traditional driver for the loonie. West Texas Intermediate (WTI) crude has been trading in a range around $82 a barrel, which is not strong enough to offset the negative pressure on the Canadian dollar from its interest rate disadvantage against the US. Unless we see a significant and sustained oil price rally above $90, the path of least resistance for USD/CAD remains upward.
