Canadian Dollar remains steady amid surging oil prices

• USD/CAD holds steady as higher crude oil prices lend support to both currencies.
• Oil gains over 10% this month as geopolitical strains and shipping disruptions in the Strait of Hormuz weigh on supply.
• Traders remain wary as US-Iran peace talks continue and Fed Chair Warsh maintains a neutral stance on rates.

With the US Dollar (USD) holding firm, USD/CAD is largely unchanged near 1.4060 in Wednesday’s Asian session, following four consecutive days of declines. Higher oil prices have fuelled inflation worries and demand for safe-haven assets, supporting the USD and keeping the currency pair steady.

Further gains in USD/CAD may, however, be limited by the prospect of higher crude prices strengthening the commodity-linked Canadian Dollar (CAD) as well. Oil advanced while traders assessed conflicting reports on diplomatic efforts between the United States (US) and Iran.

Market sentiment came under pressure after high-level diplomatic meetings, although negotiations are still under way. In Tehran, Pakistan’s army chief, Field Marshal Asim Munir, held discussions with senior Iranian diplomatic and military leaders on bilateral relations and the progress of talks with Washington. A diplomat participating in the discussions clarified that efforts to end the conflict were continuing, but rejected reports suggesting a final agreement was close.

Mounting risks to global supply have pushed crude oil prices up more than 10% this month. Geopolitical concerns have intensified as tensions involving Saudi Arabia, Iran-backed Houthi forces, Russia, and Ukraine escalate. At least 18 attacks on vessels in the Strait of Hormuz over the past two weeks have added to those risks. Even so, energy infrastructure has proved resilient: Middle Eastern oil flows have returned to roughly 80% of prewar levels.

Recent remarks by Fed Chair Kevin Warsh have also left financial markets assessing the Federal Reserve’s policy direction. By stressing that he does not "prejudge" interest rate decisions, Warsh offered no clear indication of whether the central bank would increase rates or leave them unchanged at its forthcoming October policy meeting.

Technical Analysis: Can USD/CAD Recover Above Its EMAs?

A near-term bearish bias persists on the daily chart, with USD/CAD at 1.4060 and spot trading below both the 50- and nine-day Exponential Moving Averages (EMAs). Following the recent retreat from the highs, the 14-day Relative Strength Index (RSI) has eased to around 42.7, suggesting that upward momentum is weakening. Meanwhile, the latest FXS Fed Sentiment Index reading near 127.5 indicates a more muted policy premium than earlier in the rally.

Recovery attempts face an initial hurdle at the 50-day EMA of 1.4075, ahead of stronger selling pressure near the nine-day EMA at 1.4140. Together, these levels limit rebounds. Beyond them, horizontal resistance at 1.4794 remains a more substantial obstacle, presenting a major test for the broader uptrend should bulls seek another leg higher.

Can Warsh’s optimism on investment and AI offset caution over crisis scars?

At 5.6/10, the FXS Speechtracker score placed Fed Chair Warsh’s remarks slightly below the historical average of 6.1/10, reflecting a moderately constructive tone rather than an overtly hawkish one. His admission of being "over-scarred from the global financial crisis" points to continued caution over financial stability, even as he draws attention to structural growth and an investment surge powered by "good policies." Warsh highlighted AI both as a source of near-term demand and as a means of improving confidence in data. Combined with his reluctance to prejudge upcoming meetings, this suggests a data-dependent approach that limits the policy signals available to Dollar traders.

Despite the slightly softer FXS Speechtracker score, the broader policy narrative remained firmly hawkish: the FXS Fed Sentiment Index recorded a 0.00-point move, holding at an elevated 127.51. For currency markets, high index readings alongside Warsh’s caution stemming from past crises suggest that support for the Dollar rests on expectations of sustained vigilance over inflation and financial stability, rather than an imminent dovish shift.

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