USD/CAD Breaks 1.4100 as Oil Slide & Fed Gap Hit CAD

Key Moments

Commodity Weakness Weighs on Canadian Dollar

The Canadian Dollar is under pressure as USD/CAD extends its advance for a fifth consecutive session, with the pair trading near 1.4140 during Asian hours on Friday. The move reflects broad Canadian Dollar (CAD) softness, coinciding with renewed weakness in crude oil – a key export driver for Canada.

Oil prices are retreating following reports that the United States and Iran are exploring a phased framework to reopen the Strait of Hormuz and roll back the US blockade on Iranian ports. These discussions, described as mediated by Qatari officials, were reportedly launched on the sidelines of the United Nations General Assembly and are being portrayed as a potential breakthrough.

US-Iran Talks Cloud Geopolitical Risk Premium

Despite the reported diplomatic opening, the geopolitical backdrop remains tense. Iran is said to be insisting that it will not accept any agreement or surrender control over the Strait of Hormuz unless the US first lifts its port blockade and eases military pressure. According to the report, a White House official indicated that President Donald Trump is willing to engage in dialogue, but that Washington perceives limited need to offer concessions given what it views as a strong position after its sanctions campaign.

The prospect of a phased arrangement around the Strait of Hormuz has reduced some geopolitical risk premium embedded in crude benchmarks, pressuring oil prices and, by extension, the commodity-linked Canadian Dollar.

Stronger US Dollar Backed by Hawkish Fed Expectations

At the same time, the US Dollar (USD) is drawing support from increasingly hawkish expectations for Federal Reserve policy. Market pricing, as reflected in CME FedWatch Tool data, now assigns a 67.5% probability to a benchmark interest rate increase in October. This represents a sharp move higher from an implied 55.4% chance one week earlier and only 11% one month ago.

The repricing is being reinforced by recent communication from Fed officials, which has kept the policy narrative firmly oriented toward the risk of additional tightening.

Paulson Highlights Persistent Inflation Risks

Fed’s Paulson delivered a notably hawkish message, with an FXS Speechtracker score of 8.1/10, stronger than the historical average of 7/10. Paulson emphasized that the US central bank may need to raise interest rates again and characterized the September hike as shifting policy into a more effective inflation-fighting posture. Paulson also underscored that underlying inflation remains “stubbornly high” and that “the best that can be said is that it has not worsened.”

Paulson’s remarks pointed to the AI buildout as a potential source of inflation pressures, while also citing a resilient economy and a stable labor market as factors that lean toward additional tightening to bring inflation back to the 2% objective.

The FXS Fed Sentiment Index was unchanged, moving 0.00 points and staying at a high 148.18, which the FXS Speechtracker framework classifies as firmly hawkish. The lack of movement in the index, despite its elevated level, suggests that Paulson’s comments are aligned with an already well-established hawkish stance at the Federal Reserve rather than signaling a new escalation in perceived policy aggressiveness.

Technical Picture: USD/CAD Trend Remains Constructive

On the daily chart, USD/CAD is trading at 1.4140, maintaining its push higher above key moving averages. The pair is holding above the nine-period Exponential Moving Average (EMA) at 1.4048 and the 50-period EMA at 1.3955, reinforcing a constructive near-term outlook.

The short-term EMA has risen well above the longer-term EMA, underscoring a firmly positive trend structure. Meanwhile, the 14-day Relative Strength Index (RSI) stands at 72.64, placing the momentum gauge in overbought territory and signaling that bullish momentum is strong but increasingly stretched.

On the downside, the nine-period EMA serves as the first notable support level, with the 50-period EMA offering an additional buffer if a more pronounced correction develops. As long as the pair trades above these moving averages, the broader bullish bias remains intact. However, the elevated RSI reading highlights the risk that USD/CAD could experience profit-taking phases before any renewed move higher.