Canadian Dollar gains momentum on rising oil prices, hawkish BoC rate hike bets

• USD/CAD depreciates as soaring crude oil prices support the commodity-linked Canadian Dollar.
• US-Iran conflict resolution efforts continue, though officials dismiss reports that a final peace deal is imminent.
• Markets price in an 85% chance of a Fed rate pause as Chair Warsh maintains a neutral policy stance.

USD/CAD continues its losing streak for the fifth successive day, trading around 1.4050 during European hours on Wednesday. The commodity-linked Canadian Dollar (CAD) is gaining strength, supported by rising crude oil prices.

Energy markets advanced as traders evaluated mixed reports regarding diplomatic progress between the United States and Iran. While negotiations remain active, market sentiment faced headwinds following high-level diplomatic discussions in Tehran, where Pakistan’s army chief, Field Marshal Asim Munir, met with senior Iranian diplomatic and military leaders to discuss bilateral ties and the status of talks with Washington. A diplomat involved in the talks clarified that conflict resolution efforts are ongoing, while dismissing reports of an imminent final deal as premature.

BoC hike odds stay elevated despite easing Canada inflation

Societe Generale’s Kenneth Broux highlights a disconnect between the latest inflation data and market pricing, noting that Canadian headline inflation has ticked higher while core pressures have eased. Against that backdrop, he finds it “puzzling” that “money markets continue to price in better than 50% odds of a rate increase by the BoC at the end of the month,” even as USD/CAD remains locked in a clear downtrend and grinds toward key support levels.

Meanwhile, downside pressure on the NZD/USD currency pair could be restrained as the US Dollar (USD) holds its ground on safe-haven demand. Higher oil prices have renewed concerns over global inflation, providing underlying support to the Greenback. Financial markets are closely monitoring the Federal Reserve's monetary policy outlook. According to the CME FedWatch Tool, traders are pricing in an 85% probability that the Fed will hold interest rates steady next week, alongside an 88% chance of a rate hike in December.

Technical Analysis:

In the daily chart, USD/CAD trades at 1.4050, capped beneath the key moving averages, which keeps the near-term bias bearish despite the pair holding relatively close to recent highs. Price sits below the 50- and nine-day Exponential Moving Averages (EMAs), suggesting that rallies remain vulnerable while the short- and medium-term trend indicators stay overhead. The 14-day Relative Strength Index (RSI) at 41.7 drifts below the midline, hinting at waning bullish momentum after the previous overbought readings seen earlier in October.

On the topside, immediate resistance is located at the 50-day EMA at 1.4075, with a stronger barrier at the nine-day EMA around 1.4138, where selling pressure could re-emerge if the pair attempts a rebound. With no clear technical support levels derived from the given indicators, the focus remains on whether USD/CAD can reclaim the 50-day EMA to ease downside pressure, or instead extend its pullback as momentum stays soft and the Fed Sentiment Index consolidates near recent lows.

Warsh flags investment surge and AI focus but avoids pre-committing on policy

Fed Chair Warsh delivered a moderately constructive but cautious message, with the FXS Speechtracker score at 5.6/10, slightly softer relative to the historical average of 6.1/10. The admission of being "over-scarred from the global financial crisis" underscores a bias toward risk management and financial stability even as Warsh highlights structural growth and an investment surge driven by "good policies." Warsh’s refusal to pre-judge the October and December meetings, coupled with emphasis on AI’s uncertain near-term employment impact, points to a data-dependent stance that tempers any immediate hawkish signal for the Dollar.

The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated level of 127.51, confirming that the overall policy tone remains firmly in hawkish territory despite the slightly softer FXS Speechtracker score. For FX markets, the combination of a high FXS Fed Sentiment Index and Warsh’s cautious, crisis-scarred framing suggests ongoing support for the Dollar, but without fresh hawkish escalation from this speech.

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