Canadian Dollar gains despite lower oil prices
- USD/CAD eases as the US Dollar slipped after President Trump ruled out immediate military strikes against Iran, dampening safe-haven demand.
- Canadian Dollar may struggle as easing Middle East tensions pressured crude oil prices.
- Markets price in a 90.6% probability of the Fed holding rates steady at its October 27–28 meeting.
USD/CAD depreciates after opening at a bullish gap, trading around 1.4000 during Asian hours on Monday. The pair loses ground as the US Dollar (USD) declines amid easing safe-haven demand, driven by US President Donald Trump ruling out immediate military action against Iran, stating, “there will not be a strike today,” according to Al Jazeera.
However, President Trump’s remarks eased the upside pressure in oil prices, which could put downward pressure on the commodity-linked Canadian Dollar (CAD) and limit the downside of the USD/CAD pair.
Canada growth seen cooling in Q3 as housing drag persists
Analysts at Royal Bank of Canada highlight that domestic demand remains under pressure, noting that "housing markets remain weak" heading into the late-summer data run. They add that the August gross domestic product figures due next Friday "should confirm that growth slowed in Q3 after surging in Q2," reinforcing their view that the economy has shifted down a gear following the earlier burst of activity.
Traders have turned their attention to the upcoming Federal Reserve policy decision. The Fed is widely expected to hold interest rates steady before potentially pursuing another rate hike in December. According to the CME FedWatch Tool, markets are currently pricing in a 90.6% probability of a rate pause at the October 27–28 policy meeting, alongside a 79.7% chance of a hike in December.
Safe-haven demand splinters across currencies as geopolitical and AI risks evolve
Strategists at OCBC observe that safe-haven flows are increasingly fragmented across the G10 complex, with different shocks driving demand for different currencies. They note that “AI jitters favour JPY, Middle East tensions support CAD and NOK, while French fiscal stress benefits CHF,” underscoring how technology-related growth concerns, regional geopolitical risks and country-specific fiscal worries are each shaping distinct pockets of defensive positioning in the FX market.
Technical Analysis: USD/CAD eases amid prevailing bearish bias
In the daily chart, USD/CAD trades at 1.4000, retaining a bearish near-term bias as it holds below both the nine- and 50-period Exponential Moving Averages (EMAs). The pair has retreated from recent highs and remains capped by this short-term EMA cluster, while the 14-day Relative Strength Index (RSI) at 37 leans toward the oversold side, suggesting weakening bullish momentum rather than a decisive reversal.
On the topside, immediate resistance is located at the 50-period EMA at 1.4067, followed closely by the nine-period EMA at 1.4073, with a stronger barrier at the horizontal level near 1.4300. On the downside, initial support emerges at 1.3732 ahead of a more distant structural floor at 1.3482, and only a sustained break beneath these levels would open the door to a deeper corrective phase.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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