Positive US-Iran news drives Oil lower, stalling Canadian Dollar gains

USD/CAD lacks a clear direction, with US Dollar weakness counterbalanced by lower oil prices.
The Canadian Dollar faces pressure from WTI’s steep fall, even as the BoC maintains a hawkish stance.
The pair’s next directional move could hinge on the US midterm elections and Friday’s jobs reports.

Direction remains elusive for USD/CAD on Monday, with weakness in the US Dollar (USD) and declining oil prices creating opposing pressures and keeping trade choppy. The pair is trading near 1.3975 at the time of writing. On Friday, it touched 1.3941, its lowest reading since 16 September.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Encouraging diplomatic developments between the US and Iran have prompted traders to push oil prices lower. According to ISNA, Iranian President Masoud Pezeshkian said the Supreme Leader had given the government certain powers over negotiations. An earlier Axios report said US President Donald Trump favours allowing more time for diplomacy with Iran. Down more than 5% for the day, West Texas Intermediate (WTI) is trading close to $96 a barrel. As Canada is a major crude oil exporter, movements in oil prices have a significant bearing on the Loonie.

Pressure on the US Dollar persists as cheaper oil tempers inflation worries, at least for now, and hastens the fall in US Treasury yields. The retreat in yields from multi-year highs follows stronger demand for government bonds amid the AI-led sell-off in technology shares.

Caution has also set in among traders ahead of the US midterm elections on Tuesday. At around 101.68, the US Dollar Index (DXY) has recovered from its intraday trough of 101.44, though it remains 0.28% lower for the day. The index measures the Greenback against a basket of six major currencies.

Betting markets currently “favor a Democratic sweep,” according to strategists at Brown Brothers Harriman, who cite platforms including Polymarket and Kalshi as “putting the odds around 70%.” Since that result is largely expected, they say the configuration “points to a relatively muted initial market reaction if Democrats win both chambers,” while BBH warns that “a Republican Senate hold would be the bigger surprise and could spark more market volatility.”

The Greenback’s losses should, however, be limited by a hawkish Federal Reserve (Fed) outlook, with policymakers still committed to returning inflation to the 2% target. After raising rates by 25 basis points (bps) in September, the Fed left them steady at 3.75%-4.00% last week. According to the CME FedWatch Tool, traders assign a 74% probability to a rate increase in December.

US manufacturing activity strengthened more than anticipated in Monday’s data: the ISM Manufacturing PMI climbed from 54.5 to 55.5 in October, exceeding the 54.6 forecast. In contrast, the Prices Paid Index declined from 77.9 to 75.2, coming in below expectations of 77.0.

Last week, the Bank of Canada (BoC) increased its policy rate by 25 basis points (bps) to 2.50% without ruling out additional hikes. Canadian policymakers remain worried that high energy costs could feed into inflation more broadly.

Canadian manufacturing figures released on Monday nevertheless signalled softer activity. The S&P Global Manufacturing PMI slipped from 51.5 in September to 49.6 in October. Attention now turns to Friday’s employment reports from both countries as traders look for the next major catalyst for USD/CAD.

US midterm elections: what should markets know?

What do voters decide in the US midterm elections?

Held at the midpoint of a president’s four-year term, US midterms are federal elections in which voters elect all 435 members of the House of Representatives and roughly one-third of the Senate. In many states, voters also select governors and other officials at state and local levels.

On what date will the 2026 midterm elections take place?

Voters go to the polls on Tuesday, 3 November 2026. Under federal law, Election Day falls on the Tuesday following November’s first Monday. Many states have already begun early voting and postal voting.

What makes the US midterm elections significant?

Control of both chambers of Congress during the final two years of President Donald Trump’s term is determined by these elections. Each chamber’s majority party directs its legislative agenda and selects committee leaders. In the Senate, it also controls the confirmation process for judges and senior officials.

Will voters elect a president in the 2026 midterms?

No. Presidential elections take place every four years, with the next scheduled for November 2028. Often regarded as a verdict on the incumbent president’s party, midterms have historically tended to cost that party seats in the House.

What could the 2026 midterms mean for the US dollar?

A limited and temporary response, rather than a sustained trend, is what most analysts anticipate for the US Dollar. Markets broadly regard a divided Congress as the most likely scenario and have partly factored it into prices. The results may produce a more pronounced response in Treasury yields. When an outcome strengthens expectations of fiscal stimulus, yields and the US Dollar tend to rise; a legislative deadlock that curbs fresh spending can send both lower. Disputes over funding or the debt ceiling can also briefly support the Dollar through safe-haven demand. Across a six-to-twelve-month horizon, economic growth and Federal Reserve policy carry more weight than the election result.

What is the usual stock-market pattern around midterm elections?

Historically, US equities have tended to struggle ahead of midterms before strengthening afterwards. Since 1950, the S&P 500 has recorded gains in the 12 months following every midterm election, 19 out of 19, averaging about 15%. Analysts attribute this pattern to the reduction in uncertainty after the results become clear. Past performance does not guarantee future returns, and some strategists caution that elevated valuations in 2026 could challenge that record.

Why might markets favour a divided Congress?

Investors have frequently responded positively to divided government, as legislative deadlock reduces the likelihood of far-reaching changes in taxation, spending and regulation. With a Republican in the presidency, the S&P 500 has historically performed well in the years after midterms that leave control of Congress split. However, funding deadlines, disputes over the debt ceiling and congressional investigations remain potential sources of short-term volatility.