Insights 
VT 
The Canadian Dollar (CAD) is experiencing a downward trend, with a 0.2% loss against the US Dollar (USD) today. This makes it a less strong performer in comparison to other currencies.
The Federal budget outlines increased spending in areas such as housing, defence, infrastructure, and productivity, aiming to enhance growth. However, the fiscal year’s deficit is expected to rise to CAD78 billion, surpassing the previous projection of CAD42 billion.
Minority Government Support
The minority government may require support for the budget to be approved, although another election is unlikely. The CAD remains unimpressed, with its current spot rate deviating more from the estimated fair value of 1.3917.
Movements in the USD have been noted, with a breakthrough of the 1.4080 resistance, now an initial support level. Further appreciation towards 1.4160 is anticipated, indicating a 50% retracement of the USD’s decline from February to June.
With USD/CAD breaking through the 1.41 level, we see the Canadian dollar’s underperformance as a continuing trend fueled by domestic policy. The federal budget’s projection of a C$78 billion deficit is unsettling the market, especially as it represents a significant increase from the C$40 billion deficit we saw in the 2023-2024 fiscal year. This fiscal loosening is happening just as the Bank of Canada is trying to manage inflation, creating a conflict that weighs on the currency.
This policy divergence with the United States is becoming more pronounced, supporting a stronger USD. Recent data shows US non-farm payrolls for October 2025 beat expectations, adding 210,000 jobs, which reinforces the Federal Reserve’s “higher for longer” interest rate stance. In contrast, the Bank of Canada held its rate steady in its last meeting, citing concerns over slowing Canadian GDP growth, which is now tracking below 1% annually.
Impact Of WTI Crude Oil Prices
Adding to the pressure, we note that WTI crude oil prices, a key Canadian export, have recently softened to below $75 a barrel due to concerns about a global slowdown. This backdrop of weak commodity prices combined with expansive fiscal policy makes the CAD vulnerable. From our perspective, the path of least resistance for the currency is lower.
Given the break of the key 1.4080 resistance level, traders should consider positioning for further CAD weakness in the coming weeks. Buying USD call options or selling CAD futures are direct ways to express this view, targeting the 1.4160-1.4170 zone next. This area represents a significant 50% retracement of the decline we witnessed earlier in the year.
Volatility is also a key factor, as 1-month implied volatility for the pair has ticked up from 6.0% to 7.5% over the past few weeks. This suggests the market is pricing in larger price swings, making long-volatility strategies like straddles potentially profitable if a catalyst accelerates the trend. Traders could use these instruments to position for a sharp move through the next resistance level.
Looking at historical data, a sustained move above 1.42 could bring levels last seen during the market stress of early 2020 into focus. While we are not at those extremes yet, the current momentum suggests that buying dips in USD/CAD is the more prudent strategy. We will be watching closely to see if the pair can consolidate above 1.41 before testing higher levels.
