Loonie Strengthens As Oil Rally & Risk Pressure USD/CAD

Key Moments

USD/CAD Under Pressure as Tech Earnings Hit the Dollar

USD/CAD continues to move lower, marking a seventh consecutive day of declines and trading around the 1.4000 level during Asian hours on Friday. The pair has come under sustained downside pressure as the US Dollar (USD) struggles amid growing skepticism about the durability of the artificial intelligence-driven equity rally.

Investor sentiment toward the Greenback deteriorated after quarterly results from several megacap technology companies fell short of expectations, undermining confidence in key market leaders and weighing on the broader AI narrative.

Risk Aversion Shifts Flows Within Safe-Haven Space

At the same time, escalating geopolitical risks in the Middle East have intensified risk-off positioning across global markets. Reports suggesting that the US and Israel are preparing potential additional military actions against Iran following upcoming midterm elections have reinforced demand for safe-haven assets.

This shift in sentiment has benefited low-yielding safe-haven currencies, notably the Japanese Yen and Swiss Franc, at the expense of the US Dollar, adding another layer of downward pressure on USD/CAD.

Fed Caution Supports Rate-Pause Expectations

Federal Reserve (Fed) policymakers have offered little indication of any immediate push to accelerate monetary tightening. Fed Chair Kevin Warsh recently highlighted optimism about the underlying strength of the US economy but stopped short of signaling whether further interest rate increases might be required.

Despite this cautious stance, market participants are assigning a high likelihood to an unchanged policy outcome at the next meeting. According to the CME FedWatch Tool, the probability of a rate pause at the October 27-28 Federal Open Market Committee gathering currently stands at 92.8%.

(The story was corrected on October 23 at 02.03 GMT to say in the third title that the CME FedWatch Tool currently prices in a 92.8% probability of a rate pause in October, and not an increase.)

Oil Rally Bolsters the Canadian Dollar

The Canadian Dollar (CAD) is drawing support from its close correlation with commodities, particularly crude oil. USD/CAD has been pressured as the commodity-linked currency benefits from a robust move higher in oil prices, with WTI trading near its highest levels in roughly five weeks.

The advance in crude has been driven by escalating geopolitical tensions and increasing concerns about potential disruptions to energy supplies in the Middle East.

Geopolitical Tensions Target Energy Infrastructure

Iran-backed Houthi militants in Yemen have recently claimed responsibility for attacks on Saudi Arabia’s Red Sea port of Yanbu, along with deadly strikes aimed at an oil field and an airport in the country, which is the world’s largest crude exporter.

Further adding to market anxiety, US and Israeli forces have reportedly developed plans for possible renewed strikes on Iran after next month’s midterm elections, with Iran’s energy infrastructure described as a likely focal point.

In Europe, geopolitical risks remain elevated as well. Ukraine has stepped up its attacks on Russian oil refineries in the context of a US-Russia agreement involving diesel supplies, contributing to broader concerns about global energy supply stability.