The Canadian Dollar experiences a decline as oil prices fall, influenced by reports regarding US-Iran discussions aimed at reopening the Strait of Hormuz. Geopolitical tensions endure as Iran calls for the cessation of port blockades, while the United States upholds its resolute position. The US Dollar has appreciated in value as the CME FedWatch data indicates a 67.5% probability of an interest rate increase in October. USD/CAD extends its gains for the fifth consecutive day, trading around 1.4140 during Asian hours on Friday. The pair appreciates as the commodity-linked Canadian Dollar encounters downward pressure from declining crude oil prices. Crude oil prices have declined following reports indicating that the United States and Iran are contemplating a phased agreement aimed at reopening the Strait of Hormuz and lifting the US blockade on Iranian ports. Mediated by Qatari officials, these breakthrough discussions were reportedly initiated on the sidelines of the United Nations General Assembly. However, both nations uphold steadfast positions.
Iran is steadfast in its position, asserting that it will not engage in any agreements or cede control over the Strait of Hormuz unless the United States lifts its port blockade and diminishes military pressure. Conversely, a White House official indicated that although President Donald Trump is receptive to negotiations, the United States perceives minimal pressure to make concessions, bolstered by its robust position following the sanctions campaign. Concurrently, the USD/CAD pair is gaining momentum as the US Dollar strengthens, driven by hawkish signals from Federal Reserve officials. Financial markets have reacted in a predictable manner: data from the CME FedWatch Tool shows that the probability of an October benchmark rate hike has surged to approximately 67.5%, a significant rise from 55.4% a week earlier and merely 11% a month prior. Fed’s Paulson delivered a distinctly hawkish message, with an FXS Speechtracker score of 8.1 out of 10, notably stronger relative to the historical average of 7 out of 10.
Emphasising the necessity for potential further interest rate increases by the US central bank, Paulson characterised the September hike as a shift toward a more effective approach in combating inflation. He underscored that underlying inflation continues to be “stubbornly high,” noting that the most optimistic perspective is that it has not deteriorated. References to the AI buildout as a source of inflation pressures, alongside a resilient economy and stable labour market, reinforce a bias toward further tightening to restore inflation to 2%. The FXS Fed Sentiment Index remained stable, registering no change at 148.18, which continues to indicate a firmly hawkish stance as per the FXS Speechtracker framework. The static but elevated reading indicates that Paulson’s remarks align with an already established hawkish stance at the Federal Reserve, rather than representing a new intensification in perceived policy aggression.
In the daily chart, USD/CAD is positioned at 1.4140, continuing its upward trajectory above the nine-period Exponential Moving Averages at 1.4048 and the 50-period EMA at 1.3955, which collectively support a strong bullish near-term outlook. The short-term EMA has crossed significantly above the longer one, reinforcing an upward trend structure. Meanwhile, the 14-day Relative Strength Index at 72.64 resides in overbought territory, suggesting that while upside momentum remains robust, it is becoming increasingly stretched. On the downside, initial support emerges at the nine-period EMA, with a deeper cushion at the 50-period EMA should a corrective pullback unfold. As long as USD/CAD maintains its position above these moving average supports, the overarching bullish sentiment persists. However, the heightened RSI indicates that the pair may be susceptible to periods of profit-taking prior to the re-emergence of buying interest.
