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FXStreet Insights Team’s Observations and Insights
The content from FXStreet Insights Team includes expert-driven observations along with additional insights by analysts. Note that market data is strictly for informational purposes and should not be used as recommendations for trading decisions.
We see the Canadian dollar under pressure as the USD/CAD holds firmly above the 1.4000 level. This is happening because markets are fully pricing in a Bank of Canada rate cut on October 29. Recent data supports this view, as Canada’s latest jobs report for September showed a surprising loss of 20,000 positions, pushing the unemployment rate up to 6.2%.
In contrast, the US economy appears more resilient, which should keep the Federal Reserve on hold for now. The last Non-Farm Payrolls report showed a robust gain of over 250,000 jobs, while core inflation remains stubbornly above the Fed’s target at 3.4%. This growing policy divergence between a dovish BOC and a neutral Fed is the key driver for a higher USD/CAD.
For derivative traders, this outlook suggests positioning for further Canadian dollar weakness against the US dollar. Buying USD/CAD call options with expiration dates after the October 29th meeting is a direct way to play this anticipated move. A bull call spread could also be considered to reduce the upfront premium, especially given the high certainty of the event.
Weakness in Energy Markets and Historical Patterns
Weakness in energy markets is also adding to the pressure, as WTI crude prices have recently fallen below $80 a barrel, weighing on the commodity-linked Canadian dollar. This situation is reminiscent of what we saw in 2015, when a combination of BOC rate cuts and falling oil prices sent USD/CAD surging well past 1.4500. We believe this historical pattern provides a useful guide for the coming weeks.
