Canadian Dollar falls to one-week low as USD holds firm ahead of BoC and Fed

• With the USD reaching a two-week high, USD/CAD draws buying interest for a second consecutive day.
• Geopolitical risks and expectations of a Fed rate rise support the safe-haven dollar, outweighing firmer oil prices.
• Attention turns to the BoC and Fed interest rate decisions as traders await a fresh catalyst for direction.

Having recovered this week from the 1.3970-1.3965 area, its lowest since 16 September, USD/CAD extends its advance for a second consecutive day on Wednesday. During the Asian session, the pair pushes further above the mid-1.4000s to a new weekly high, with traders awaiting key central bank events.

A 25-basis-point (bps) rate increase is being priced in ahead of the Bank of Canada (BoC) decision. The main focus, however, will be the conclusion of the two-day FOMC meeting and comments from Federal Reserve (Fed) Chair Kevin Warsh. Further guidance on the Fed's policy trajectory will be sought from Thursday's major US economic releases: the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index. That policy outlook will be central to movements in the US Dollar (USD), offering USD/CAD a fresh directional catalyst.

For now, traders assign a probability of over 80% to another US interest rate rise in December, according to the CME Group's FedWatch Tool, as high energy prices stoke inflation concerns. Alongside this, deadlocked US-Iran talks and fresh attacks on Saudi Arabia sustain the geopolitical risk premium. These factors help draw buyers to the safe-haven USD for a fourth consecutive day. Nevertheless, firmer crude oil prices could support the commodity-linked Canadian dollar and restrain USD/CAD, suggesting bulls should remain cautious.

According to a Tuesday report in The Wall Street Journal, the US has told several Gulf Arab countries to prepare for a brief, intense military campaign against Iran after the 3 November midterm elections. Separately, Yemen's Iran-backed Houthis said they had fired a ballistic missile at Saudi Arabia's defence ministry in Riyadh and claimed a direct hit. With US–Iran negotiations also at a standstill, concerns about a further escalation in Middle East tensions are helping revive demand for crude oil. This follows a two-day corrective retreat from the multi-month high reached last Friday.

USD/CAD chart by hour

USD/CAD Maintains a Positive Intraday Bias

Trading above both the 100-period Exponential Moving Average (EMA) on the 4-hour chart and the 23.6% Fibonacci retracement, USD/CAD retains a positive intraday outlook. The first upside barrier is the 38.2% Fibonacci retracement at 1.4095. Beyond that lie the 50% retracement at 1.4134 and the 61.8% level at 1.4173. Initial support, meanwhile, comes at the 23.6% retracement at 1.4046, with the 100-period EMA at 1.4036 next in line. If the retreat deepens, the structural floor near 1.3968 would come into view.

(An AI tool assisted in preparing the technical analysis in this article. Find out more.)