The USD/CAD pair stabilized on Thursday, trading around 1.0438 after briefly hitting a six-month high near 1.0480 earlier in the week. The Canadian Dollar (CAD) is holding firm as the US Dollar (USD) remains under pressure, with investors cautious amid renewed US-China trade frictions and shifting expectations for central bank policy.
Global risk sentiment remains fragile after trade tensions between Washington and Beijing reignited late last week. Both sides have ramped up rhetoric and introduced new retaliatory measures, prompting traders to seek safe-haven assets. Meanwhile, talks over a potential sectoral trade arrangement between the US and Canada — covering autos, steel, and energy exports — are also being closely watched as policymakers aim to ease cross-border frictions.
Oil prices continue to weigh on the Loonie’s upside, with West Texas Intermediate (WTI) crude lingering near a five-month low at around $58 per barrel, down roughly 7% month-to-date. As energy remains one of Canada’s top exports, persistent weakness in crude prices limits the CAD’s potential gains.
Focus shifts to BoC policy outlook
Attention now turns to the Bank of Canada (BoC), where traders are recalibrating expectations for another rate cut at the upcoming October 29 policy meeting. The shift follows stronger-than-anticipated labor market data for September, which showed solid job gains and temporarily eased pressure on policymakers to deliver aggressive monetary easing.
Money market pricing now reflects about a 50–55% probability of a 25-basis-point cut, down from nearly 70% earlier this month. BoC Governor Tiff Macklem is set to speak later Thursday, and his comments will be closely parsed for any new policy signals ahead of the meeting.
Fed outlook remains dovish
In the US, the Federal Reserve is widely expected to continue its rate-cutting cycle before year-end. According to the CME FedWatch Tool, markets are pricing in a 97% chance of a 25-basis-point cut at the October 29–30 FOMC meeting and a 94% likelihood of another reduction in December.
Recent remarks from Fed officials have reinforced the dovish bias. Governor Christopher Waller said on Thursday that “cutting rates again is the right thing to do,” noting that little has changed in recent weeks and that the neutral rate likely sits 100–125 basis points below the current Fed Funds Rate. He added that the pace of easing could slow if GDP growth holds up or if the labor market gains momentum.
Separately, Governor Stephen Miran described the US economy as “in a pretty good place” but cautioned that it faces new downside risks, suggesting that “monetary policy remains too tight.”
