USD/CAD holds steady around 1.3950 supported by US Dollar strength, firm Oil prices

• USD/CAD trades directionless around 1.3950, unchanged on the day.
• The US Dollar maintains recent gains, while markets price in another Fed interest rate cut in October.
• The Canadian Dollar finds limited support from the rebound in Crude Oil prices.

USD/CAD hovers around 1.3950 at the time of writing on Wednesday, after reaching its highest level since May last Thursday at 1.3986 . The US Dollar (USD) holds firm, with the US Dollar Index (DXY) up 0.3% for the day, supported by the weakness of the Euro (EUR) and Japanese Yen (JPY).

Despite this strength, the Greenback’s upside may remain capped by growing market expectations of monetary easing from the Federal Reserve (Fed). According to the CME FedWatch tool, markets now assign nearly a 95% chance of a 25-basis-point rate cut in October and more than 80% chance of another reduction in December.

Investors now await the Federal Open Market Committee (FOMC) Minutes due at 18:00 GMT, and speeches from several Fed officials throughout the day, for further clues about the future policy path.

In Washington, US lawmakers failed to resolve their disputes over the funding legislation on Tuesday, and the government shutdown passed the one-week mark. The Senate will vote again on Wednesday, with Majority Leader John Thune noting that the chamber will be voting on the same competing bills repeatedly. The White House’s Office of Management and Budget reportedly sent a memo stating that the 750,000 furloughed federal workers are not guaranteed back pay.

This new Senate vote will also be closely watched by financial markets, as investors gauge whether prolonged political deadlock could deepen the government shutdown and weigh further on economic confidence, potentially influencing the Fed’s next monetary policy moves.

On the Canadian side, stronger West Texas Intermediate (WTI) US Oil prices provide partial support to the Loonie. WTI is up 0.3% for the day, extending its rally for a fourth consecutive day, after the Organization of the Petroleum Exporting Countries and its allies (OPEC+) decided earlier to approve a modest output increase of 137,000 barrels per day for November, well below market expectations.

Trade relations between the United States and Canada took center stage on Tuesday as Canadian Prime Minister Mark Carney met US President Donald Trump at the White House for their second round of bilateral discussions.

In remarks to reporters, Canadian cabinet minister in charge of bilateral trade Dominic LeBlanc described the discussions as “successful, positive, and substantive,” according to Reuters, though he stopped short of announcing any concrete deal or relief on steel tariffs. LeBlanc confirmed that negotiations would continue, noting that the tone of the meeting was “constructive and forward-looking.” 

Trump, meanwhile, praised Canada’s efforts in combating the fentanyl crisis, citing improved cross-border cooperation. Despite the upbeat mood, no final agreement was reached on trade or tariffs.

In this context, USD/CAD remains range-bound in the short term, supported by the strength of the US Dollar but limited by the rebound in Oil prices, Canada’s key export commodity.