Canadian Dollar holds near 16 September highs as USD weakness counterbalances falling oil prices

• Near a one-and-a-half-month low, USD/CAD finds little buying interest.
• Hopes of diplomacy with Iran put pressure on the USD, while weaker crude oil prices weigh on the Loonie.
• The US ISM Manufacturing PMI is next in focus for traders, with US and Canadian jobs reports due on Friday.

At around 1.3965 in early European trading, USD/CAD is finding it difficult to extend a modest intraday rise as opposing forces shape the pair’s performance. A weak start to the week for crude oil prices weighs on the commodity-linked Loonie, lending support to the pair. Yet waning demand for safe havens puts the USD under pressure, leaving USD/CAD near the low reached on Friday, its weakest level since 16 September.

On Sunday, Iranian negotiators reportedly met Qatari mediators for a third consecutive day as they sought to advance an agreement to end the US-Israeli war on Iran. Iran has also put forward a two-day (48-hour) plan to reopen the Strait of Hormuz, conditional on the US meeting a set of requirements. US President Donald Trump, meanwhile, said talks with Iran were going fine and that Iran wanted an agreement. With no significant military escalation over the weekend, some profit-taking has emerged in crude oil following its recent advance to the highest level since mid-May.

The resulting pressure on the Canadian Dollar (CAD) largely outweighs the support from the Bank of Canada's (BoC) abrupt turn towards monetary tightening. For the USD, optimism about a possible diplomatic resolution to the Middle East conflicts is a drag. Nevertheless, a geopolitical risk premium persists: Trump has left open the possibility of further military action after the 3 November midterm elections. Iran’s Supreme Leader, Mojtaba Khamenei, has also instructed his senior military commanders to prepare for renewed confrontation and broaden Tehran’s options for retaliation.

Oil Faces Upside Risks as Strait of Hormuz Tensions Persist

From a market standpoint, analysts at MUFG/BTMU caution that “the distribution of oil risks remains asymmetric.” Although they recognise that diplomatic success could “compress some geopolitical premium,” they warn that “renewed military escalation or further disruption around the Strait of Hormuz could generate a sharper upside move,” highlighting how exposed energy importers remain to another surge in Brent prices.

A further source of potential USD support is the roughly 75% probability traders have priced in of another increase in borrowing costs by the US Federal Reserve (Fed) in December. That could also provide some support for USD/CAD. Investors may prefer to stay on the sidelines before this week’s key US economic releases at the start of the new month, beginning with the ISM Manufacturing PMI later today. Friday’s closely followed monthly labour market figures from Canada and the US will, however, take centre stage, with the US release widely known as the Nonfarm Payrolls (NFP) report.

USD/CAD daily price chart

USD/CAD Remains Under Near-Term Technical Pressure

Below the 100-day Simple Moving Average (SMA) at 1.4047, the near-term outlook for USD/CAD remains bearish. The pair is trading close to the 61.8% Fibonacci retracement at 1.3969. Overhead, the tight grouping of the 50.0% retracement at 1.4033 and the 100-day SMA indicates that rallies remain susceptible to selling pressure.

For a recovery to progress, the first hurdle would be the 50.0% Fibo. level and the adjacent 100-day SMA at 1.4047. Beyond these, resistance is expected at the 38.2% retracement near 1.4096, followed by the 23.6% level at 1.4175, before attention turns to the cycle high around 1.4302. Initial downside support lies at the 78.6% level at 1.3878, followed by the recent swing low around 1.3763.

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