Key Moments
- USD/CAD trades around 1.4100 in Asian hours after three straight sessions of gains, with CAD steady despite cautious oil market sentiment.
- Expectations for a 25-basis-point Fed rate increase in October climbed to 69.7%, up from 48.7% a week earlier, following stronger US manufacturing data.
- Fed’s Barr signaled that “further rate hikes [are] likely needed to ensure timely return to 2% inflation,” reinforcing upside support for the US Dollar.
USD/CAD Stabilizes as Oil and Policy Risks Compete
USD/CAD is consolidating after three consecutive days of advances, hovering near 1.4100 during Thursday’s Asian session. The currency pair has shown limited movement as the commodity-linked Canadian Dollar (CAD) holds its ground in an environment of ongoing uncertainty around crude oil markets.
Lingering doubts over the trajectory of United States-Iran diplomatic discussions are keeping traders focused on potential supply disruptions. At the UN General Assembly, Iranian President Masoud Pezeshkian stated that Tehran would not bow to threats and reiterated the nation’s right to use nuclear technology for economic progress. He also stressed that Iran would curb freedom of navigation through the Strait of Hormuz as long as US sanctions and blockades remain in place, a stance that could support higher crude prices.
Scotiabank Flags Yield and Seasonal Pressures on CAD
Strategists at Scotiabank highlight that the broader backdrop for the Canadian Dollar remains unfavorable. They stress that “wide spreads are the biggest drag on the CAD’s fundamental performance.” The strategists also note that “negative CAD seasonality in Q4 means the risk of stronger headwinds for the CAD in the coming weeks,” suggesting the currency may stay on the back foot into year-end.
At the same time, USD/CAD may continue to find support as the US Dollar (USD) benefits from firm expectations of additional Federal Reserve tightening and resilient US data. The latest Flash US S&P Global PMI release for September showed manufacturing activity at 52.0, surpassing projections and helping to balance modest retreats in services and composite readings.
Rising Fed Hike Odds and Data Watch
Following the recent US data, market-implied odds of a 25-basis-point Fed rate increase in October jumped to nearly 69.7%, a sharp move higher from 48.7% the prior week. Traders are now watching the upcoming US weekly Initial Jobless Claims release for further confirmation of labor market conditions.
In parallel, several Federal Reserve officials have reiterated backing for the latest rate move while emphasizing continued concerns about inflation. Their remarks have reinforced the perception that policy may need to remain restrictive, which tends to underpin the Dollar against lower-yielding peers.
Hawkish Barr Comments Bolster Dollar Sentiment
Fed’s Barr delivered a clearly hawkish tone, reflected in an FXS Speechtracker score of 8/10, exceeding the historical average of 7/10 and pointing to a stronger tightening bias. The view that “further rate hikes [are] likely needed to ensure timely return to 2% inflation,” coupled with remarks that inflation risks have risen and labor market risks have diminished, signals a firm inclination toward more policy firming in an environment of robust growth and a solid job market.
By stating that the Fed was “out of position” and needed to “recalibrate” policy, Barr reinforced the notion that current settings may still be too accommodative, a backdrop that typically favors the US Dollar and weighs on risk-sensitive assets.
The FXS Fed Sentiment Index climbed by 0.42 points to 148.81, remaining decisively in hawkish territory and consistent with the elevated FXS Speechtracker reading. This shift underscores a strengthening market belief that the Fed is tilted toward further tightening, which is likely to continue supporting the Dollar against lower-yielding currencies.
USD/CAD Technical Picture: Bullish Bias With Overbought Signals
On the daily chart, USD/CAD is trading near 1.4100 and remains firmly positioned above both the nine- and 50-period Exponential Moving Averages (EMAs). This alignment of short- and medium-term trend indicators points to a constructive bullish setup in the near term.
The 14-day Relative Strength Index (RSI) stands at 69.74, hovering close to overbought territory. This suggests that upside momentum is strong but that the pair may be susceptible to phases of consolidation or shallow corrective pullbacks.
| Indicator | Level / Value | Implication |
|---|---|---|
| Spot USD/CAD | 1.4100 | Holds near recent highs after three days of gains |
| Nine-period EMA | 1.4017 | First layer of downside support |
| 50-period EMA | 1.3946 | Broader demand zone on deeper pullbacks |
| 14-day RSI | 69.74 | Close to overbought, signaling strong but stretched momentum |
On the downside, immediate support is located at the nine-period EMA at 1.4017, with the 50-period EMA at 1.3946 providing an additional demand area on more pronounced dips. As long as USD/CAD remains above these moving averages, buyers are likely to step in on pullbacks, keeping attention directed toward the upside even if short-term gains moderate in light of the elevated RSI.
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