Canadian Dollar gains even as oil pressure eases

USD/CAD declined even as a reduction in Middle East tensions weighed on oil and the Canadian Dollar.
Demand for safe-haven assets weakens as Middle East tensions ease, leaving the US Dollar under pressure.
Further USD declines remain limited by robust US GDP and labour market figures, even as the likelihood of a Fed rate hike recedes.

Selling pressure persists in USD/CAD for a third straight day, with the pair trading near 1.3970 in Friday’s Asian session. The decline comes even as fresh diplomatic initiatives in the Middle East ease strains in oil markets and weigh on the commodity-linked Canadian Dollar (CAD).

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

Oil prices remained stable after the Wall Street Journal reported a fresh attempt to revive peace negotiations. According to the report, US Vice President JD Vance contacted Mohsen Rezaei, Secretary of Iran's Supreme National Security Council, on Wednesday. US President Donald Trump said he had authorised Vance’s diplomatic approach and added that Iran requires help with medical supplies and other essential resources.

Hopes of US-led diplomatic peace negotiations are reducing safe-haven demand, putting the US Dollar (USD) under pressure. As tensions in the Middle East subside, concerns over oil supplies and inflation have been partly offset, tempering expectations of a Federal Reserve (Fed) interest rate increase at its December meeting. Markets now assign a nearly 75% probability to a 25-basis-point hike, compared with 84.2% a day earlier.

Recent US economic releases, however, point to sustained resilience and have strengthened bets on a Fed rate increase. Supported by consumer spending growth of 3.8% YoY, preliminary Gross Domestic Product came in at 3.4% YoY, above the 3.2% forecast and Q2’s 2.2% reading. The Core PCE Price Index, the Fed’s preferred inflation gauge, also advanced 3.1% YoY, matching expectations. Meanwhile, initial jobless claims edged down to 194K, adding to evidence of an economy gathering heat and a tight labour market.

Technical Analysis: Can USD/CAD Reverse Its Near-Term Weakness?

A near-term bearish outlook remains in place on the daily chart, where USD/CAD trades at 1.3970 below both the nine- and 50-day Exponential Moving Averages (EMAs). Having pulled back from recent highs, the pair sits beneath this cluster of short- and medium-term averages, indicating that gains remain constrained for now. At 36, the 14-day Relative Strength Index (RSI) points to subdued momentum rather than outright oversold conditions.

Any recovery would first encounter resistance at 1.4027, the nine-day EMA, and then at 1.4057, the 50-day EMA. A stronger hurdle lies at the horizontal level near 1.4300. Should the decline continue, the first support is the horizontal floor at 1.3732, followed by the deeper structural level of 1.3482, where stronger buying interest would be expected.

Chart Analysis USD/CAD — USD/CAD: What Does the Daily Chart Show?

Does the BoC’s modestly hawkish hike point to higher rate expectations?

The tone of the Bank of Canada’s mid-week announcement mattered alongside the rate decision itself, according to strategists at Scotiabank. In their assessment, Wednesday’s BoC hike was “delivered with a modestly hawkish message” and “ultimately delivered a slight boost in rate expectations across the curve,” strengthening the Canadian Dollar’s support relative to its commodity peers.

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

Canadian Dollar: Frequently Asked Questions

Which factors shape movements in the Canadian Dollar?

Interest rates set by the Bank of Canada (BoC), oil prices, economic conditions, inflation and the trade balance are the main drivers of the Canadian Dollar (CAD). Oil is Canada’s largest export, while the trade balance measures the difference between the value of the country’s exports and imports. Investor sentiment also matters: an appetite for riskier assets, known as risk-on, generally supports the CAD, whereas risk-off sentiment reflects a preference for safe havens. Conditions in the US economy are another important influence, given that the US is Canada’s largest trading partner.

Why do Bank of Canada decisions matter for the Canadian Dollar?

By determining the interest rate at which banks lend to each other, the Bank of Canada (BoC) shapes borrowing rates across the economy and exerts considerable influence over the Canadian Dollar. Its primary objective is to keep inflation within 1-3%, raising or lowering interest rates as needed. Relatively high rates generally support the CAD. The BoC can also alter credit conditions through quantitative easing or quantitative tightening; easing tends to weaken the CAD, while tightening tends to strengthen it.

Why are oil prices important for the Canadian Dollar?

With petroleum accounting for Canada’s largest export, changes in oil prices tend to feed through immediately to the Canadian Dollar’s value. Rising oil prices generally lift the CAD by increasing overall demand for the currency, while falling prices usually have the reverse effect. More expensive oil also makes a positive trade balance more likely, providing further support to the CAD.

What does inflation data mean for the Canadian Dollar?

Traditionally, inflation was viewed as harmful to a currency because it erodes the value of money. In modern times, however, the easing of cross-border capital controls has often produced the opposite outcome. Higher inflation tends to prompt central banks to raise interest rates, drawing capital from global investors seeking attractive returns. The resulting inflows increase demand for the domestic currency, which in Canada is the Canadian Dollar.

How can economic releases move the Canadian Dollar?

The Canadian Dollar can respond to macroeconomic releases because they provide a measure of economic health. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys can all shape the CAD’s direction. Economic strength supports the currency by attracting additional foreign investment and potentially encouraging the Bank of Canada to raise interest rates. Weak economic readings, by contrast, are likely to weigh on the CAD.