Oil falls on positive US-Iran headlines, stalling Canadian Dollar gains

USD/CAD lacks a clear trend as US Dollar weakness counters the impact of lower oil prices.
Despite the BoC’s hawkish position, the Canadian Dollar faces pressure from WTI’s steep fall.
The next catalyst for the pair could come from the US midterm elections or Friday’s jobs data.

USD/CAD is trading near 1.3975 at the time of writing. Monday’s session remains choppy, with a weaker US Dollar (USD) and declining oil prices exerting opposing pressures on the pair. On Friday, it reached 1.3941, its lowest point since 16 September.

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

Positive diplomatic developments between the US and Iran have pushed 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% on the day, West Texas Intermediate (WTI) is trading close to $96 a barrel. As Canada is a major crude oil exporter, oil price fluctuations directly affect the Loonie.

Lower oil prices are easing inflation worries, at least temporarily, and accelerating the fall in US Treasury yields, leaving the US Dollar under pressure. An AI-led sell-off in technology shares has increased demand for government bonds, pulling yields back from multi-year highs.

Caution has also increased ahead of Tuesday’s US midterm elections. After reaching an intraday low of 101.44, the US Dollar Index (DXY) is trading near 101.68, still 0.28% lower on 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, with Polymarket and Kalshi among the platforms “putting the odds around 70%.” As that outcome is largely expected, the strategists 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 nevertheless be limited by a hawkish Federal Reserve (Fed) outlook. Policymakers remain determined to return inflation to the 2% target. Following a 25-basis-point (bps) rise in September, the Fed held rates at 3.75%-4.00% last week. The CME FedWatch Tool shows traders assigning a 74% probability to a December increase.

October’s US ISM Manufacturing PMI reached 55.5, Monday’s figures showed, up from 54.5 and above the 54.6 forecast. The Prices Paid Index, however, declined from 77.9 to 75.2, undershooting expectations of 77.0.

Last week, the Bank of Canada (BoC) lifted its policy rate to 2.50%, a rise of 25 basis points (bps), without ruling out additional increases. Canadian policymakers remain worried that high energy costs could feed into broader inflation.

Canadian manufacturing figures released on Monday, however, signalled softer activity. The S&P Global Manufacturing PMI dropped from September’s 51.5 to 49.6 in October. Attention now turns to Friday’s employment releases in both countries, which could be the next significant driver for USD/CAD.

US midterm elections: key questions

US midterm elections: which offices are contested?

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

2026 midterms: what is the election date?

Tuesday, 3 November 2026 is Election Day. Under federal law, the vote takes place on the Tuesday following November’s first Monday. Many states have already begun early and postal voting.

US midterms: why does control of Congress matter?

Control of each congressional chamber during the final two years of President Donald Trump’s term is determined by these elections. The party holding the majority directs the legislative agenda and selects committee leaders. In the Senate, it also controls confirmations of judges and senior officials.

2026 midterms: is the presidency being contested?

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.

2026 midterms: what could move the US Dollar?

A limited, temporary US Dollar response is what most analysts anticipate, rather than a sustained trend. Markets widely regard a divided Congress as the base case and have partly priced it in. The election results may produce a more pronounced response in Treasury yields. Results that strengthen expectations for fiscal stimulus typically support both yields and the US Dollar; legislative deadlock that constrains additional spending can weigh on both. Disputes over funding or the debt ceiling may also briefly boost safe-haven demand for the Dollar. Across a six-to-twelve-month horizon, economic growth and Federal Reserve policy carry more weight than the election.

Midterm elections: what is the historical stock market pattern?

Historically, US equities have tended to struggle ahead of midterms and strengthen afterwards. Since 1950, the S&P 500 has risen over the 12 months following every midterm election: 19 out of 19, averaging gains of about 15%. Analysts attribute this pattern to the removal of uncertainty once the outcome is clear. Past performance does not guarantee future returns, and some strategists caution that elevated valuations in 2026 could challenge that record.

Divided Congress: why do markets often welcome it?

Investors have often responded positively to divided government, as legislative deadlock reduces the likelihood of extensive tax, spending and regulatory changes. With a Republican president in office, the S&P 500 has historically performed well in the years after midterms that divide control of Congress. Funding deadlines, debt-ceiling disputes and congressional investigations remain risks that can increase short-term volatility.