Key Moments
- USD/CAD traded around 1.4120 in Asian hours on Monday, remaining weaker after opening with a bearish gap.
- CME FedWatch Tool showed traders pricing in an 83.9% probability that the Federal Reserve will leave rates unchanged later this month, up from 49% a month earlier.
- WTI declined after the U.S. administration waived sanctions and tariffs on Russia, raising concerns for the commodity-linked Canadian Dollar.
USD/CAD Under Pressure as Fed Hike Odds Recede
USD/CAD slipped as the U.S. Dollar lost ground, with investors increasingly positioning for the Federal Reserve to hold interest rates steady. The pair edged higher intraday after opening with a bearish gap but stayed in negative territory, trading near 1.4120 during Asian dealings on Monday.
The U.S. Dollar remained subdued amid fading expectations for another Federal Reserve rate increase in October. Sentiment shifted following comments from Fed Chairman Kevin Warsh at an International Monetary Fund event on Friday, where he said he does not prejudge interest-rate decisions and gave no clear signal on whether the central bank will hike or maintain short-term rates at its October 27-28 meeting.
Fed Pause Expectations Firm Up
Market pricing for a near-term rate move has adjusted sharply. Data from the CME FedWatch Tool indicated that traders are assigning an 83.9% probability that the Fed will leave rates unchanged later this month, compared with a 49% chance seen only a month earlier.
The reassessment of the Fed path has weighed on the U.S. Dollar, supporting the Canadian Dollar on a relative basis even as other headwinds for CAD emerge from the commodity complex.
Oil Weakness Poses Risk to Commodity-Linked CAD
The Canadian Dollar’s performance may be capped as crude prices retreat. West Texas Intermediate (WTI) declined after U.S. President Donald Trump granted waivers on key sanctions and tariffs on Russia, a step expected to increase Russian fuel exports and add to global supply.
The move followed Trump’s decision to sign an executive order on Friday suspending restrictions under the Graham Act, legislation he had approved just a month earlier under pressure from lawmakers seeking to penalize Moscow over its war in Ukraine. Secretary of State Marco Rubio said the president will have up to 60 days to assess the economic consequences of this waiver.
| Market/Policy Driver | Latest Development |
|---|---|
| USD/CAD | Trades around 1.4120 in Asian hours on Monday after a bearish gap, remaining under pressure |
| Fed rate expectations | 83.9% probability of no change this month, up from 49% a month ago (CME FedWatch Tool) |
| Oil prices | WTI softens on U.S. waivers of Russian sanctions and tariffs, potentially weighing on CAD |
BoC Outlook: Focus on Inflation and Business Sentiment
Attention in Canadian markets is turning to domestic data, with Monday’s inflation release and the Bank of Canada’s Q3 Business Outlook Survey seen as key inputs ahead of the Oct. 28 policy decision.
Economists at Royal Bank of Canada noted that both releases will be examined closely for signs that price pressures are becoming more persistent. They highlighted that markets will be watching “closely for signs on whether inflation pressures from persistently elevated energy prices are broadening and permeating across the economy,” which would complicate the policy backdrop in the run-up to the late-October announcement.
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