The Canadian Dollar remains resilient against the US Dollar, despite ongoing uncertainties in the geopolitical oil market. The ongoing tension between Iran and the United States, coupled with the possibility of restrictions in the Strait of Hormuz, may lead to an increase in crude oil prices. Robust US manufacturing data has elevated the likelihood of an October Fed rate hike to 69.7%. USD/CAD steadies after three days of gains, trading around 1.4100 during Asian hours on Thursday. The USD/CAD pair has exhibited minimal movement as the commodity-linked Canadian Dollar holds steady in the context of cautious sentiment regarding oil prices. Crude oil prices could experience an uptick as uncertainty persists regarding the diplomatic discussions between the United States and Iran. During his address at the UN General Assembly, Iranian President Masoud Pezeshkian asserted that Tehran would not acquiesce to threats, reiterating the nation’s entitlement to advance nuclear technology for the purpose of economic development. Pezeshkian also emphasised that Iran would restrict freedom of navigation through the strategic Strait of Hormuz for as long as US sanctions and blockades remain active.
Strategists caution that the Canadian Dollar’s underlying backdrop remains challenging, emphasizing that “wide spreads are the biggest drag on the CAD’s fundamental performance.” They add that “negative CAD seasonality in Q4 means the risk of stronger headwinds for the CAD in the coming weeks,” reinforcing the view that the currency could stay on the defensive as the year-end approaches. However, the USD/CAD pair may gain ground as the US Dollar receives support from hawkish Federal Reserve expectations and resilient domestic economic indicators. This momentum was underscored by the latest Flash US S&P Global PMI data for September, which indicated that manufacturing expanded at a faster-than-anticipated rate of 52.0, thereby mitigating minor declines in services and composite activity. In response to US economic indicators, market expectations for a 25-basis-point Federal Reserve rate hike in October have risen significantly to approximately 69.7%, a notable increase from 48.7% observed the previous week. Market participants are increasingly focusing on the imminent release of the US weekly Initial Jobless Claims report. Simultaneously, numerous Fed officials have reaffirmed their backing for the recent rate hike and have provided new cautions concerning ongoing inflationary threats.
Fed’s Barr delivered a distinctly hawkish message, with an FXS Speechtracker score of 8/10, surpassing the historical average of 7/10 and indicating a stronger-than-usual tightening bias. The assertion that “further rate hikes [are] likely needed to ensure timely return to 2% inflation,” alongside comments that inflation risks have increased while labour market risks have receded, underscores a clear preference for additional policy tightening in the face of strong growth and a solid labour market. By stating the Fed was “out of position” and needed to “recalibrate” policy, Barr reinforces the narrative that the current stance may still be too loose, a backdrop that is typically supportive for the Dollar and negative for risk-sensitive assets. The FXS Fed Sentiment Index increased by 0.42 points to 148.81, remaining solidly in hawkish territory and aligning with the heightened FXS Speechtracker reading. This move signals a significant reinforcement of the market’s perception that the Fed is inclined toward further tightening, a dynamic that is likely to sustain Dollar strength against lower-yielding currencies. In the daily chart, USD/CAD is positioned at 1.4100.
The pair maintains a strong position above the nine- and 50-period Exponential Moving Averages, indicating a favourable bullish outlook in the short term as both short- and medium-term trend signals converge. The 14-day Relative Strength Index at 69.74 approaches overbought territory, suggesting that while upside momentum remains robust, it may be susceptible to periods of consolidation or slight corrective pullbacks. On the downside, immediate support is indicated by the nine-period EMA at 1.4017, while the 50-period EMA at 1.3946 further strengthens a broader demand zone during deeper declines. As long as the USD/CAD pair remains above these moving averages, it is probable that buyers will protect against declines, maintaining an emphasis on upward movement, even if short-term increases appear more subdued due to the overextended RSI conditions.
