USD/CAD remains stable around 1.3940 amid market caution following the US government shutdown. The avoidance of the September US Nonfarm Payrolls report, due to the Labor Department’s shutdown, adds to the uncertainty.
The US federal government ceased operations after Congress missed a funding agreement. The lack of the Nonfarm Payrolls report this Friday, as the Labor Department halts most activities, further contributes to the economic ambiguity.
Usd Weakness Persists
In September, the US ADP Employment Change report indicated a private sector payroll decline of 32,000, with a 4.5% year-over-year pay rise, falling short of market expectations. Revising the August figure from an increase to a 3,000 decrease exacerbates the negative sentiment towards the US Dollar.
The Canadian Dollar might appreciate with rising Oil prices, as Canada remains the largest Oil supplier to the US. Currently, West Texas Intermediate (WTI) Oil price approaches $62.00 per barrel amidst ongoing supply concerns.
Canada’s S&P Global Manufacturing PMI decreased to 47.7 in September 2025, marking the eighth month of shrinkage in its manufacturing sector. This highlights continued challenges for the Canadian economy as it grapples with persistent contractions.
As of October 2, 2025, we are facing significant uncertainty due to the US government shutdown that began yesterday. Key economic data, like the Nonfarm Payrolls report, will not be released, leaving a void in market intelligence. We should expect increased volatility in pairs like USD/CAD as traders react to headlines rather than hard data.
Oil Prices and Canadian Dollar
The US Dollar is likely to face downward pressure in the near term. Looking back at the 35-day shutdown in 2018-2019, we saw the Dollar Index (DXY) weaken initially, and the recent ADP report showing a job decline of 32,000 suggests the US economy is on softer ground this time. The latest Conference Board Consumer Confidence index already slipped to 101.5 in September, showing weakness even before this political deadlock.
Rising oil prices could offer some support for the Canadian dollar, given that Canada is a major oil exporter. With WTI crude now trading near $62 a barrel, up from an average of $58 last month, the upcoming OPEC+ meeting this weekend is a critical event to watch. Any surprise production cuts would likely strengthen the CAD, while an increase would weigh on the currency.
However, the Canadian economy itself is showing signs of strain, which may limit gains for the loonie. The September S&P Global Manufacturing PMI fell for the eighth straight month to 47.7, signaling a continued contraction in that sector. This weak data supports the Bank of Canada’s recent cautious stance, making another interest rate hike less likely for now.
Given these conflicting signals, we see elevated implied volatility as a key theme for the coming weeks. This environment is favorable for options strategies that can profit from large price swings, rather than taking a simple directional bet on USD/CAD. Traders who are bearish on the US Dollar should consider using options to define their risk in case of a sudden resolution to the shutdown.
The most important factor for the next few weeks will be the length of the US government shutdown. We remember that the Congressional Budget Office estimated the five-week shutdown in early 2019 reduced real GDP by 0.2% in that quarter alone. A prolonged stalemate extending beyond two weeks could seriously damage Q4 2025 growth forecasts and further weaken the US dollar.
