The USD/CAD pair surged to a four-month high on Thursday, climbing above 1.3970 during the American trading session, marking its strongest level since May 16. The move reflects broad US Dollar strength and mounting pressure on the Canadian Dollar (CAD), weighed down by falling oil prices and a dovish outlook from the Bank of Canada (BoC).
US Dollar Rebounds Despite Government Shutdown Uncertainty
The U.S. Dollar is regaining ground despite ongoing concerns over the federal government shutdown, which continues to delay key economic data releases. The U.S. Dollar Index (DXY), which tracks the Greenback against six major currencies, is recovering from recent lows and approaching the 98.00 mark.
Economic reports have been disrupted, with Initial Jobless Claims data postponed on Thursday and Friday’s critical Nonfarm Payrolls (NFP) report also likely to be delayed, according to the Bureau of Labor Statistics (BLS).
Still, the USD remains resilient, supported by investor demand for safe-haven assets and rising expectations that the Federal Reserve (Fed) will cut interest rates later this month.
Canadian Dollar Under Pressure as Oil Falls, BoC Turns Cautious
The Canadian Dollar, commonly known as the Loonie, is underperforming across the board, with its decline exacerbated by falling crude oil prices. West Texas Intermediate (WTI) extended losses, dropping below $61.00, weighing heavily on Canada’s energy-dependent economy and currency.
In addition to the commodity headwinds, the Bank of Canada’s policy outlook is also clouding sentiment. Minutes from the BoC’s September 17 meeting, released Wednesday, painted a cautious picture. Policymakers highlighted:
- Slowing domestic momentum
- Weakness in manufacturing and household demand
- Ongoing risks from global trade disruptions
- Uncertain inflation path, especially due to volatile energy prices
As a result, the swaps market is now pricing in a 90% probability of a 25 basis-point rate cut by the end of the year, which would bring the BoC’s policy rate to 2.25%.
Markets will now look to Canada’s employment data on October 10 for further clues on the central bank’s next move.
Currency Snapshot: CAD Mixed Across the Board
Despite weakness against the US Dollar, the CAD managed modest gains against the British Pound (GBP), but remained soft relative to most other major currencies.
Daily Performance: CAD vs Majors
| Currency | % Change vs CAD |
|---|---|
| USD | +0.27% |
| EUR | +0.10% |
| GBP | -0.16% |
| JPY | +0.06% |
| AUD | +0.10% |
| NZD | +0.13% |
| CHF | +0.07% |
Outlook: Risks Skewed to the Upside for USD/CAD
With the USD showing renewed strength and the CAD facing multiple headwinds, USD/CAD remains poised for further gains unless there’s a sharp recovery in oil or a shift in the BoC’s stance.
The next key catalyst will be Canada’s jobs report, which could either reinforce or challenge market expectations for a rate cut. Until then, the pair may continue to trend higher, especially if broader risk aversion keeps supporting the US Dollar.