Higher oil prices and hawkish BoC rate hike bets lift Canadian Dollar

• Surging crude oil prices lift the commodity-linked Canadian Dollar, pushing USD/CAD lower.
• Officials reject reports of an imminent final peace agreement as efforts to resolve the US-Iran conflict proceed.
• An 85% probability of a Fed rate hold is priced into markets, with Chair Warsh retaining a neutral policy position.

1.4050 is the approximate level for USD/CAD in Wednesday’s European session. The pair is extending its decline for a fifth successive day as higher crude oil prices bolster the commodity-linked Canadian Dollar (CAD).

Mixed accounts of diplomatic progress between the United States and Iran were in focus as energy prices climbed. Negotiations continue, but sentiment came under pressure after high-level discussions in Tehran. Pakistan’s army chief, Field Marshal Asim Munir, met senior Iranian diplomatic and military leaders there to address bilateral relations and the state of negotiations with Washington. According to a diplomat participating in the talks, work to resolve the conflict remains under way. The diplomat rejected reports that a final agreement was imminent as premature.

BoC rate-hike pricing remains elevated as Canadian inflation eases

A gap between Canadian inflation figures and market expectations has drawn attention from Societe Generale’s Kenneth Broux. Headline inflation has edged up, he notes, even as underlying price pressures have moderated. He therefore considers it “puzzling” that “money markets continue to price in better than 50% odds of a rate increase by the BoC at the end of the month,” while USD/CAD follows a clear downward trend and edges towards key support levels.

Safe-haven buying is helping the US Dollar (USD) hold firm, potentially limiting downward pressure on NZD/USD. The Greenback also retains underlying support from renewed global inflation concerns as oil prices rise. Attention remains on the Federal Reserve’s monetary policy outlook. The CME FedWatch Tool puts market-implied probabilities at 85% for unchanged Fed interest rates next week and 88% for a rate increase in December.

1.4050: USD/CAD technical outlook

At 1.4050 on the daily chart, USD/CAD remains below its key moving averages. That positioning maintains a bearish near-term bias, although the pair is still relatively close to recent highs. Both the 50- and nine-day Exponential Moving Averages (EMAs) sit above the price, leaving rebounds exposed while short- and medium-term trend indicators remain overhead. At 41.7, the 14-day Relative Strength Index (RSI) is drifting below its midpoint. This suggests bullish momentum is fading after the overbought readings recorded earlier in October.

The 50-day EMA at 1.4075 marks the first upside resistance. A more substantial obstacle lies around 1.4138 at the nine-day EMA, where a recovery attempt could encounter renewed selling. The supplied indicators do not identify clear technical support levels. Attention therefore centres on whether USD/CAD can recover above the 50-day EMA and relieve downward pressure. Alternatively, the pullback could deepen as momentum remains weak and the Fed Sentiment Index consolidates close to recent lows.

5.6/10: Warsh stresses investment and AI, leaves policy options open

A 5.6/10 FXS Speechtracker score captured Fed Chair Warsh’s cautiously constructive message, slightly softer than the historical average of 6.1/10. Warsh highlighted structural growth and an investment surge fuelled by "good policies." Yet the admission of being "over-scarred from the global financial crisis" points to a preference for risk management and financial stability. By declining to prejudge the October and December meetings and stressing uncertainty around AI’s near-term effect on employment, Warsh signalled a data-dependent approach. This limits the speech’s immediate hawkish implications for the Dollar.

A 0.00-point move left the FXS Fed Sentiment Index unchanged at an elevated 127.51. Despite the slightly softer FXS Speechtracker reading, the broader policy tone therefore remains firmly hawkish. For currency markets, that high index reading, alongside Warsh’s cautious framing shaped by past crises, indicates continuing support for the Dollar. The speech, however, delivered no fresh hawkish escalation.

(The technical analysis of this story was written with the help of an AI tool. Know more.)