**USD/CAD Price Forecast: Dollar Strength Gains Momentum Amid Falling Oil Prices and Heightened Trade Tensions**
*By Arslan Butt | FX Leaders (original article), expanded and rewritten by Assistant*
The USD/CAD currency pair has been experiencing significant upward momentum, driven by a combination of macroeconomic trends and geopolitical developments. As of mid-October 2025, the pair has broken through key resistance levels due to a strengthening US dollar and a notable decline in global oil prices. Additionally, rising trade tensions between major economies are further contributing to bullish sentiment for the USD against the Canadian dollar.
This in-depth analysis explores the fundamental and technical factors influencing the ongoing rally in USD/CAD, updates key levels traders should be watching, and provides a broader context using additional sources and recent data.
## Key Factors Driving USD/CAD Price Movement
### 1. Falling Crude Oil Prices Drag Down the Canadian Dollar
Canada is one of the world’s top oil exporters, and the Canadian dollar typically has a strong correlation with global oil prices. Over the past several trading sessions, oil has experienced sharp declines primarily due to the following:
– Increased supply concerns as OPEC+ signals potential easing of production cuts.
– Lower global demand projections from the International Energy Agency (IEA), citing weaker economic data from China and Europe.
– Political instability in the Middle East, while typically bullish for oil, has had the opposite effect in this case. The market perceives longer-term uncertainty in demand more strongly than short-term supply disruptions.
As oil prices fall, the Canadian dollar usually weakens. This time, West Texas Intermediate (WTI) futures dropped below $80 per barrel, which undermined the CAD against major currencies, particularly the US dollar.
### 2. US Dollar Strengthening Across the Board
The US Dollar Index (DXY), which measures the value of the dollar against a basket of other major currencies, has been on the rise. The dollar’s strength is being underpinned by several important factors:
– Persistently high US Treasury yields. The 10-year Treasury note has hovered around 4.7 to 5 percent, attracting capital flows into US dollar-denominated assets.
– Hawkish comments from Federal Reserve officials have kept market participants on high alert for another potential interest rate hike. While inflation is showing signs of easing, the labor market remains strong, and the Fed is not ruling out additional policy tightening.
– Safe haven demand has risen amid global geopolitical instability, especially with ongoing tensions in Eastern Europe and Asia. The dollar often benefits in times of uncertainty.
### 3. Trade Tensions and Global Risk Sentiment
Investors are responding to increasing trade tensions between the United States and key economies such as China and the European Union. Tariffs are back on the table for certain industries like electric vehicles and semiconductors, which has created headwinds for global trade sentiment.
Key developments contributing to the risk-off mood include:
– US government discussions on potential new sanctions on Chinese tech firms.
– Retaliatory trade threats from China and warnings from European automotive manufacturers about rising costs.
– Concerns about the impact of tightening global credit conditions on industrial production and exports.
As risk sentiment turns sour, investors often turn to the US dollar and US Treasury notes as a safe-haven refuge, increasing demand and further pushing USD/CAD higher.
## Recent Economic Data Supporting the USD/CAD Rally
The following economic indicators have also bolstered sentiment around USD/CAD:
– US Core Consumer Price Index (CPI) rose by 0.3 percent month-over-month in September 2025, in line with expectations. Annual core inflation remains sticky, suggesting that the Fed could stay aggressive on inflation.
– Canadian housing starts and building permits came in well below expectations, suggesting a slowdown in real estate development as higher interest rates continue to weigh on the Canadian economy.
– US initial jobless claims came in stronger than expected, reinforcing optimism about the strength of the American labor market.
Read more on USD/CAD trading.