Canadian Dollar rises even as oil pressure eases

• Easing Middle East tensions weighed on oil and the Canadian Dollar, yet USD/CAD declined.
• The US Dollar remains under pressure as reduced Middle East tensions curb demand for safe havens.
• Resilient US GDP and labour figures contain USD losses even as the likelihood of a Fed rate rise recedes.

At around 1.3970 during Friday’s Asian session, USD/CAD is extending its decline into a third consecutive day. The retreat comes even as fresh diplomatic initiatives in the Middle East relieve pressure on oil markets and weigh on the commodity-linked Canadian Dollar (CAD).

A Wall Street Journal report on efforts to revive peace talks left crude oil prices broadly unchanged. According to the report, US Vice President JD Vance contacted Mohsen Rezaei, Secretary of Iran's Supreme National Security Council, on Wednesday. US President Donald Trump confirmed that he had authorised Vance's diplomatic approach and said Iran required help with medical supplies and other essential resources.

Hopes for US-led diplomatic peace talks are reducing demand for safe havens, weighing on the US Dollar (USD). With tensions in the Middle East subsiding, concerns over oil supplies and inflation have eased, tempering expectations of a Federal Reserve (Fed) interest rate rise at its December meeting. Markets now assign a nearly 75% probability to a 25-basis-point increase, compared with 84.2% a day earlier.

Recent US releases nevertheless point to persistent economic resilience and have bolstered bets on a Fed rate rise. Supported by robust consumer spending growth of 3.8% YoY, preliminary Gross Domestic Product came in at 3.4% YoY, above the 3.2% forecast and Q2's 2.2% reading. Meanwhile, the Core PCE Price Index, the Fed’s preferred inflation measure, increased 3.1% YoY, matching expectations. Initial jobless claims edged down to 194K, adding to evidence of an economy gaining momentum and a tight labour market.

Technical Analysis: USD/CAD retains a bearish near-term bias

Trading at 1.3970 on the daily chart, USD/CAD remains beneath its nine- and 50-day Exponential Moving Averages (EMAs), keeping the near-term outlook bearish. Its pullback from recent highs has taken it below this cluster of short- and medium-term averages, indicating that upside is constrained for now. At 36, the 14-day Relative Strength Index (RSI) points to subdued momentum rather than outright oversold conditions.

The nine-day EMA at 1.4027 provides the first resistance, with the fifty-day EMA at 1.4057 next in line. A more substantial hurdle lies at the horizontal level near 1.4300. Below the current price, the horizontal floor at 1.3732 offers initial support, followed by the deeper structural level at 1.3482. Should the decline continue, buyers would be expected to take a stronger interest at that lower level.

BoC rate rise lifts expectations as strategists see a modestly hawkish message

For Scotiabank strategists, the tone of the Bank of Canada’s mid-week announcement mattered alongside the decision itself. They describe Wednesday’s BoC rate rise as “delivered with a modestly hawkish message” that, in their assessment, “ultimately delivered a slight boost in rate expectations across the curve,” lending further support to the Canadian Dollar relative to its commodity peers.

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