USD/CAD rises to 1.4120 as falling oil prices pressure the commodity-linked Loonie while hawkish Fed rate hike expectations, now at 84%, bolster the US Dollar.
The pair trades around 1.4120, inching higher as falling oil prices weaken the commodity-linked CAD, while a hawkish Fed bias (84% odds of a December rate hike per CME FedWatch, up from 76%) supports the USD. Upcoming US CPI (headline seen at 3.9% vs 3.7%) is the key risk that could amplify or reverse the move.
Crude oil has fallen to its lowest levels since August as optimism over US-Iran diplomacy reduces supply-disruption risk, with Trump saying Iran is 'militarily, effectively over' and further strikes may not be necessary. Continued regional attacks are the counterweight that could reverse the decline.
Crude oil, Canada's biggest export, has fallen to its lowest level since August on optimism over a possible US-Iran deal, weighing directly on the commodity-linked Canadian Dollar. The hawkish Fed backdrop adds further pressure through rate differentials.
The USD/CAD pair trades near 1.4120 as the Canadian Dollar weakens alongside crude oil, which has hit its lowest level since August due to US-Iran diplomatic optimism. Meanwhile, the US Dollar remains supported by a hawkish Federal Reserve outlook, with market participants pricing in an 84% probability of a December rate hike following strong labor market data.
Lower oil prices hurt the oil-export-linked Canadian Dollar, while expectations of a Fed rate hike in December (84% odds per CME FedWatch) support the US Dollar, pushing the pair up to around 1.4120.
The upcoming US CPI report (headline expected at 3.9% year-over-year) and any change in US-Iran diplomatic momentum, which currently is pushing oil prices down, could move the pair.
Optimism over diplomatic efforts to end the Middle East conflict has reduced fears of supply disruption, pushing crude to its lowest levels since August, even though Trump has not ruled out further strikes.
Oil, Canada's largest export, has dropped to its lowest levels since August as optimism grows over a US-Iran deal, and the Canadian Dollar typically weakens when oil prices fall.