USD/CAD climbs to four-month high as Loonie weighed by Oil and BoC outlook

• USD/CAD climbs to four-month highs above 1.3970 as the Greenback rebounds.
• The US Dollar rebounds despite uncertainty from the government shutdown.
• Softer Oil prices weigh further on the Loonie, leaving it broadly weaker across majors.

The Canadian Dollar (CAD) trades on the back foot against the US Dollar (USD) on Thursday, with USD/CAD extending gains to fresh four-month highs. At the time of writing, the pair is trading around 1.3972 during the American session, marking its strongest level since May 16 as the Greenback stages a broad recovery.

The renewed USD strength comes in spite of heightened uncertainty stemming from the ongoing US government shutdown. The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, is recovering from a one-week low, edging back toward the 98.00 mark.

The Bureau of Labor Statistics (BLS) delayed the release of Thursday's Initial Jobless Claims, while the highly anticipated Nonfarm Payrolls (NFP) report scheduled for Friday is also not expected to be published.

Meanwhile, the Canadian Dollar remains under pressure from weaker Oil prices, with West Texas Intermediate (WTI) sliding further below the $61.00 mark. Crude's downturn, a key driver for Canada's export revenues, has amplified headwinds for the Loonie, leaving it broadly offered against its major counterparts.

Minutes from the Bank of Canada's (BoC) September 17 monetary policy meeting, released on Wednesday, added to the bearish tone for the CAD. Policymakers discussed the challenges of balancing weakening domestic momentum with persistent uncertainties from global trade disruptions.

The Governing Council noted that slower manufacturing activity, soft household demand, and the risk of spillovers from weaker global growth were tilting risks to the downside. At the same time, they acknowledged that inflation has moderated but remains vulnerable to energy price swings and supply-side shocks.

Looking ahead Canada's employment data due on October 10 will be a major driver of near-term BoC rate expectations. In the meantime, the swaps market is pricing nearly a 90% probability of a 25 basis-point (bps) cut by year-end, which would bring the policy rate down to 2.25%.