Insights 
VT 
The USD/CAD pair holds steady around 1.4010 during the early European session, amid expectations of a US government shutdown resolution and potential Federal Reserve rate cuts. The latest data showed that private US employers shed an average of 11,250 jobs weekly in October’s latter half, indicating potential labour market weaknesses for the US Dollar.
The US Senate has approved a funding compromise to end the historic government shutdown, with a House vote expected soon. Should it pass, President Trump will have the final say. A reopened government could release delayed economic data, which analysts predict may reveal a slowing economy, potentially prompting the Federal Reserve to reduce interest rates, impacting the USD’s value against the CAD.
Bank of Canada Interest Rates
The Bank of Canada lowered its rate to 2.25% in October, signalling no further cuts on the horizon. Market participants anticipate this rate to remain until mid-2027, although some foresee a change by early 2026, subject to trade developments. The Canadian Dollar is influenced by the BoC’s interest rates, oil prices, and economic health, with factors like inflation and trade balance playing pivotal roles. Economic data such as GDP and employment impact the CAD’s value, as a stronger economy supports a stronger currency.
We see the USD/CAD pair holding steady near 1.4010, but the underlying dynamics suggest a potential shift. The market is increasingly anticipating a US Federal Reserve rate cut in December, while the Bank of Canada has signaled it is finished with its own easing cycle for now. This divergence in central bank policy is the most critical factor for us to watch.
The argument for a weaker US dollar is building, supported by recent data showing a clear economic slowdown. The October 2025 non-farm payrolls report showed a gain of only 95,000 jobs, missing expectations and confirming the labor market weakness seen in private payroll data. With the latest US inflation figures from October 2025 coming in at 2.1%, the CME FedWatch Tool now indicates a 75% probability of a rate cut next month.
On the other hand, the Canadian dollar appears to have a more solid footing. The Bank of Canada’s decision to pause its rate cuts at 2.25% last month looks justified, as Canadian inflation for October 2025 registered at 2.9%, which is still near the top of the central bank’s target range. Furthermore, with WTI crude oil prices remaining stable around $75 per barrel, there is consistent support for the loonie.
Derivative Trading Strategy
For derivative traders, this environment points towards positioning for a decrease in the USD/CAD exchange rate. We should consider buying put options on USD/CAD to capitalize on a potential move lower, especially as the end of the US government shutdown will release a backlog of economic data that is expected to confirm a slowing economy. This strategy provides a defined-risk way to gain exposure to the downside.
The immediate focus will be on the Bank of Canada’s Summary of Deliberations, due to be published later today, for any subtle shifts in its outlook. Historically, when we look back at the Fed’s policy pivot in 2019, the shift towards rate cuts resulted in a period of sustained US dollar weakness. A similar pattern appears to be emerging, making the next few weeks a critical window for executing these positions.
