USD/CAD declines as the US Dollar faces challenges due to diminished safe-haven demand following Trump’s announcement of “productive” talks with Iran and a halt on pre-election strikes. The commodity-linked CAD may face challenges due to declining oil prices in the wake of Trump’s comments. Leaked reports suggested that the United States had developed three-day strike plans aimed at Iranian military and energy infrastructure. USD/CAD continues to decline for the second consecutive day, currently trading near 1.4210 during the Asian session on Friday. The pair depreciates as the US Dollar loses safe-haven demand, following statements from US President Donald Trump on social media, where he announced that the US was engaged in “productive discussions” with Iran and would refrain from attacking the country prior to the midterm elections.
Markets are currently assigning a probability of approximately 17.7% to the likelihood that the US central bank will increase the interest rate by at least 25 basis points at the upcoming policy meeting, a decrease from the 38% observed a week prior, according to the CME FedWatch tool. Markets are currently reflecting an 83% probability of an interest rate increase at the Federal Reserve’s meeting in December. Fed’s Musalem delivers a slightly more hawkish-than-usual message, with the 7.3/10 FXS Speechtracker score just above the 7.2/10 historical average, underscoring continuity rather than a regime shift in tone. The emphasis that “more monetary policy firming will be required” to return inflation to 2% promptly, alongside comments that the economy is “pretty strong” and the job market “balanced and stable,” reinforces a narrative of persistent demand-driven inflation and a higher-for-longer rate profile, even as Musalem stresses going into meetings with an open mind. Musalem’s remarks on AI-related investment, strong demand for capital, and an unsustainable fiscal path suggest structural upward pressure on yields, supporting a view that the Dollar remains underpinned by elevated real rates and anchored inflation expectations.
The FXS Fed Sentiment Index decreased by 0.25 points to 138.33, suggesting a slight retreat in perceived hawkishness, even as the speech underscored a robust tightening bias. With the index firmly above the 100 neutral line, the Fed remains in clear hawkish territory even after the small decline, aligning with Musalem’s call for additional policy firming and helping to explain why the Dollar and broader rate expectations continue to be supported in the FXS Speechtracker framework. Fed’s Waller delivered a distinctly hawkish message, with an FXS Speechtracker score of 8 out of 10, stronger relative to the historical average of 7.2 out of 10. The insistence that “more hikes [are] needed” while allowing that they need not come at consecutive meetings underscores a bias toward further tightening but with tactical flexibility, reinforcing the view that policy will stay restrictive for longer. Emphasis on persistent inflation drivers, including AI-related investment and ongoing energy shocks, alongside a “solid and stable” labour market and strengthening growth in the second half of 2026, indicates a Federal Reserve that is more focused on entrenched price pressures than on immediate activity risks.
The FXS Fed Sentiment Index increased by 0.42 points to 138.34, remaining solidly in hawkish territory and aligning with the heightened FXS Speechtracker reading. This move signals that markets should continue to price a higher-for-longer Fed path, a backdrop that typically supports the Dollar against lower-yielding peers. However, the downside of the USD/CAD pair may be limited, as the commodity-linked Canadian Dollar could encounter difficulties in light of declining oil prices following Trump’s remarks. President Trump asserted that record volumes of crude are currently transiting the Strait of Hormuz, while emphasising that the US naval blockade of Iranian ports will remain fully operational. Analysts observe that the Canadian Dollar’s latest moves indicate a phase of consolidation, highlighting that “recent price action in the CAD is suggestive of consolidation and a reassessment of the near-term path following an astonishing run of weakness from early September.” Market participants are utilising this pause to reevaluate the trajectory of USDCAD following the significant depreciation of the Loonie in recent weeks.
