Oil price surge leaves Canadian Dollar holding steady

• USD/CAD holds steady as higher crude oil prices support both currencies.
• Over 10% gained this month: oil rises on geopolitical tensions and shipping disruptions in the Strait of Hormuz.
• Traders remain cautious as US-Iran peace talks continue and Fed Chair Warsh maintains a neutral stance on rates.

USD/CAD trades near 1.4060. The pair is little changed during Wednesday’s Asian session following four days of declines. Higher oil prices have fuelled inflation concerns and demand for safe havens, keeping the US Dollar (USD) firm and the pair steady.

Further gains in USD/CAD may be limited, however, as rising crude prices also stand to strengthen the commodity-linked Canadian Dollar (CAD). Oil advanced while traders assessed conflicting reports on diplomatic efforts between the United States (US) and Iran.

High-level diplomatic meetings weighed on market sentiment, although negotiations are still under way. In Tehran, Pakistan’s army chief, Field Marshal Asim Munir, discussed bilateral relations and the progress of talks with Washington during meetings with senior Iranian diplomatic and military leaders. A diplomat involved in the discussions confirmed that efforts to end the conflict continue but rejected reports suggesting a final agreement was close.

More than 10% has been added to crude oil prices this month as global supply risks compound. Geopolitical risks have intensified amid rising tensions involving Saudi Arabia, Iran-backed Houthi forces, Russia, and Ukraine. At least 18 attacks on vessels in the Strait of Hormuz over the past two weeks have added to those risks. Energy infrastructure has nonetheless proved resilient: Middle Eastern oil flows have recovered to approximately 80% of prewar levels.

Recent remarks by Fed Chair Kevin Warsh have also left financial markets assessing the Federal Reserve’s policy path. Warsh stressed that he does not "prejudge" interest rate decisions. Traders therefore lack a clear indication of whether the central bank will increase rates or leave them unchanged at its upcoming October policy meeting.

Technical Analysis: USD/CAD Below Key EMAs

At 1.4060 on the daily chart, USD/CAD retains a bearish near-term bias. Spot remains below both the 50- and nine-day Exponential Moving Averages (EMAs). Following the recent retreat from the highs, the 14-day Relative Strength Index (RSI) has slipped to about 42.7, suggesting that upward momentum is weakening. The latest FXS Fed Sentiment Index reading near 127.5 also indicates a smaller policy premium than earlier in the rally.

Recovery attempts face initial resistance at the 50-day EMA of 1.4075, with stronger selling pressure around the nine-day EMA at 1.4140. Together, these levels limit the upside. Beyond them, the horizontal resistance line at 1.4794 remains a more substantial hurdle. Any fresh bullish extension would bring the broader uptrend to a major test there.

5.6/10 Speechtracker score: Warsh balances crisis caution with investment and AI optimism

At 5.6/10, the FXS Speechtracker score placed Fed Chair Warsh’s remarks slightly below the historical average of 6.1/10. His tone was moderately constructive rather than overtly hawkish. Describing himself as "over-scarred from the global financial crisis" points to continued caution over financial stability, even as he stresses structural growth and an investment surge supported by "good policies." Warsh presented AI as both a near-term source of demand and a means of improving confidence in data. Combined with his reluctance to prejudge upcoming meetings, this indicates a data-dependent approach that limits the policy signal for the Dollar.

A 0.00-point move left the FXS Fed Sentiment Index unchanged at a still-elevated 127.51. Despite the slightly softer FXS Speechtracker score, that reading indicates that the speech kept the broader policy narrative firmly hawkish. For FX markets, elevated index readings alongside Warsh’s crisis-driven caution suggest continued support for the Dollar from expectations of vigilance on inflation and financial stability, rather than an imminent dovish shift.

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