Canadian Dollar holds steady as US Dollar rebound caps further gains

USD/CAD recovers some ground as the US Dollar bounces off three-week lows.
The Canadian Dollar draws support from higher Oil prices as Middle East tensions fuel supply worries.
Next week's Fed and BoC interest rate announcements remain in focus for traders.

A partial recovery in USD/CAD on Thursday faces resistance from the Canadian Dollar's (CAD) strength against most major currencies, with higher Oil prices amid Middle East tensions supporting the currency. The pair has pared some earlier losses as the US Dollar (USD) seeks to recover from a fresh three-week low reached during Asian trading hours. USD/CAD is trading near 1.4032 at the time of writing, having touched an intraday low of 1.4013, its weakest level in a month.

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Fragile market sentiment is also driving demand for government bonds and pulling yields down across major economies. The shift comes as growing worries about AI-related investments trigger a sell-off in global equities.

At around 5.03%, the benchmark 10-year US Treasury yield is down 1.50% on the day, having touched a high of 5.36% earlier this month. Following the US Dollar Index's (DXY) approach towards 103.00 last week, the Greenback has lost ground alongside the decline in Treasury yields.

Fresh demand for the US Dollar nevertheless indicates that some traders are seeking safety in the Greenback. Expectations of higher US interest rates also remain a source of underlying support. After hitting an intraday low of 101.45, the DXY is trading near 101.78. The index measures the Greenback against a basket of six major currencies.

Central banks continue to adopt a hawkish stance as energy-related inflation risks stemming from the Middle East war add to global price pressures. Reports that the US and Israel are considering fresh strikes against Iran after the US midterm elections have lifted Oil prices to five-week highs. Continued Houthi attacks in Saudi Arabia are also intensifying supply risks across the Gulf region.

Expectations that central banks will have to retain restrictive monetary policies are firming as the continuing energy shock threatens to prolong elevated inflation. Attention now turns to next week's Federal Reserve (Fed) monetary policy meeting. The US central bank is widely expected to hold interest rates steady, following a 25 basis points (bps) increase in September.

With another rate hike in December priced in, traders will scrutinise the meeting for signals on the Fed's next policy step. The CME FedWatch Tool puts the probability of a December rate increase at around 89%.

For the Bank of Canada (BoC), expectations of the year's first rate hike at its 28 October meeting are gaining ground. Monday's data showed that higher gasoline prices pushed Canada's annual inflation rate to 3.1% in September, a four-month high.

The Loonie's gains should, however, remain constrained by the sizeable gap between US and Canadian yields and interest rates. The benchmark 10-year Canadian government bond yield is currently around 3.81%.

How Is the Canadian Dollar Performing Today?

The Canadian Dollar (CAD) recorded its strongest performance against the New Zealand Dollar today. Its percentage changes against the listed major currencies are shown in the table below.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.25%	0.14%	-0.57%	-0.10%	0.21%	0.42%	-0.07%
EUR	-0.25%		-0.13%	-0.86%	-0.39%	-0.04%	0.20%	-0.35%
GBP	-0.14%	0.13%		-0.72%	-0.27%	0.08%	0.31%	-0.21%
JPY	0.57%	0.86%	0.72%		0.46%	0.78%	0.97%	0.50%
CAD	0.10%	0.39%	0.27%	-0.46%		0.33%	0.55%	0.04%
AUD	-0.21%	0.04%	-0.08%	-0.78%	-0.33%		0.19%	-0.28%
NZD	-0.42%	-0.20%	-0.31%	-0.97%	-0.55%	-0.19%		-0.45%
CHF	0.07%	0.35%	0.21%	-0.50%	-0.04%	0.28%	0.45%

To read the heat map of percentage changes between major currencies, select the base currency in the left-hand column and the quote currency in the top row. For instance, selecting the Canadian Dollar on the left and following its row horizontally to the US Dollar gives the percentage change for CAD (base)/USD (quote) in the corresponding cell.