Canadian Dollar stands firm as oil prices soar

• Higher crude oil prices support both currencies, leaving USD/CAD little changed.
• Oil gains over 10% this month as geopolitical tensions and shipping disruptions in the Strait of Hormuz weigh on supply.
• Traders remain cautious as US-Iran peace talks continue and Fed Chair Warsh maintains a neutral stance on interest rates.

Rising oil prices are fuelling inflation concerns and demand for safe-haven assets, keeping the US Dollar (USD) firm. Against that backdrop, USD/CAD is broadly unchanged around 1.4060 in Wednesday’s Asian session, following four consecutive days of declines.

Higher crude prices could also strengthen the commodity-linked Canadian Dollar (CAD), however, potentially limiting any further rise in USD/CAD. Oil advanced as 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, held talks with senior Iranian diplomatic and military leaders on bilateral relations and the progress of discussions with Washington. A diplomat taking part in the talks clarified that efforts to end the conflict continue, but rejected reports suggesting a final agreement was close.

Mounting risks to global supply have pushed crude oil prices more than 10% higher this month. Geopolitical risks have intensified amid rising tensions involving Saudi Arabia, Iran-backed Houthi forces, Russia, and Ukraine, compounded by at least 18 attacks on vessels in the Strait of Hormuz during the past two weeks. Energy infrastructure has nevertheless proved resilient: Middle Eastern oil flows have recovered to roughly 80% of prewar levels.

Recent remarks by Fed Chair Kevin Warsh have also left financial markets assessing the Federal Reserve’s monetary policy path. Warsh stressed that he does not "prejudge" interest rate decisions. Traders therefore have no clear indication of whether the central bank will increase rates or leave them unchanged at its forthcoming October policy meeting.

Technical Analysis: USD/CAD Retains a Bearish Near-Term Bias

Trading at 1.4060 on the daily chart, USD/CAD remains below both its 50- and nine-day Exponential Moving Averages (EMAs), preserving a bearish near-term outlook. Following the recent retreat from the highs, the 14-day Relative Strength Index (RSI) has slipped to around 42.7, suggesting that upward momentum is weakening. Meanwhile, the latest FXS Fed Sentiment Index reading near 127.5 points to a more muted policy premium than earlier in the rally.

Recovery attempts face initial resistance at the 50-day EMA of 1.4075, with stronger selling pressure then emerging around the nine-day EMA at 1.4140. Beyond these two constraints, the horizontal resistance line at 1.4794 remains a more substantial obstacle. Should bulls seek another extension higher, that level would provide a major test of the broader uptrend.

Warsh balances crisis caution with optimism on investment and AI

At 5.6/10, the FXS Speechtracker score placed Fed Chair Warsh’s remarks slightly below the historical average of 6.1/10, reflecting a moderately constructive tone rather than an overly hawkish one. His acknowledgement of being "over-scarred from the global financial crisis" highlights a continuing inclination towards caution over financial stability. At the same time, Warsh pointed to structural growth and an investment surge supported by "good policies." His emphasis on AI as both a near-term source of demand and a means of improving confidence in data, together with his refusal to prejudge forthcoming meetings, indicates a data-dependent approach that limits the policy signal for the Dollar.

With a move of 0.00 points, the FXS Fed Sentiment Index held at a still-elevated 127.51. This suggests that, despite the slightly softer FXS Speechtracker score, the speech kept the wider policy narrative firmly hawkish. In FX markets, elevated index readings alongside Warsh’s lingering caution from the crisis imply that expectations of sustained vigilance on inflation and financial stability continue to support the Dollar, rather than an imminent dovish shift.

(An AI tool assisted in writing this story’s technical analysis. Find out more.)