The USD/CAD pair exhibits an upward movement as the US Dollar appreciates in response to elevated US CPI inflation figures. The CME FedWatch Tool indicates a probability of approximately 91% for a rate hike in December. The commodity-linked Canadian Dollar may appreciate in response to rising oil prices. USD/CAD continues to exhibit strength for the second consecutive day, trading near 1.4190 during the Asian session on Wednesday. The pair appreciates as the US Dollar remains stronger following the latest inflation report, which cemented market expectations for a Federal Reserve rate hike in December. According to the CME FedWatch Tool, markets currently reflect an estimated 91% likelihood of a rate increase in the upcoming month.
The US Consumer Price Index increased by 0.4% month-over-month in October, surpassing the anticipated 0.3% forecast, despite a deceleration from September’s 0.6% increase. Meanwhile, Core CPI, which excludes food and energy prices, increased by 0.3%, aligning with September’s rate and surpassing the 0.2% forecast. The Bureau of Labour Statistics did not release annual figures for October, a consequence of the previous year’s government shutdown. Despite these bullish inflation metrics, the Greenback may encounter challenges from a decline in safe-haven demand as optimism increases for a diplomatic resolution to the US-Iran conflict. US President Donald Trump indicated that additional military strikes against Iran may no longer be essential, while US Secretary of State Marco Rubio remarked at a G7 meeting that significant combat operations were no longer needed.
At the same time, Congressional Democrats are considering leveraging the impending government funding deadline to prompt the Trump administration to pursue a peaceful resolution. The potential appreciation of the USD/CAD pair may be limited, as the commodity-sensitive Canadian Dollar could find support from elevated oil prices. West Texas Intermediate oil price gains ground after two days of losses, trading around $85.70 per barrel at the time of writing. However, crude oil prices may decline following indications of reduced tensions between the US and Iran. US President Donald Trump indicated that further military strikes against Iran might not be required, thereby enhancing prospects for a possible diplomatic resolution. Meanwhile, Congressional Democrats are considering using the upcoming government funding deadline to push the Trump administration toward ending the conflict. Fed’s Goolsbee delivered a distinctly more hawkish tone, with the FXS Speechtracker score at 8/10, notably above the 6.8/10 historical average and underscoring heightened concern about persistent price pressures.
The emphasis that the latest CPI was “borderline disturbing,” that services inflation is “not coming down,” and that there is “a real inflation issue” that the Fed is “going to have to deal with” signals a clear willingness to tighten further if needed, even as the job market is described as “steady and stable.” This combination of persistent inflation worries and a resilient labor backdrop is Dollar-supportive and argues against imminent policy easing. The FXS Fed Sentiment Index rose by 1.69 points to 145.61, reinforcing that the overall policy tone remains firmly in hawkish territory well above the neutral 100 mark. In the context of the elevated FXS Speechtracker score, this move in the FXS Fed Sentiment Index suggests markets should price in a higher-for-longer Fed path, which is typically constructive for the Dollar and a headwind for risk-sensitive currencies.
