USD/CAD Slips as Safe-Haven Bid Fades and Oil Retreats

Key Moments

USD/CAD Retreats as Geopolitical Tensions Cool

USD/CAD is trading near 1.4000 in Asian hours on Monday, softening after an earlier bullish gap at the open. The pair is under pressure as the US Dollar (USD) weakens in response to reduced demand for safe-haven assets.

The shift in sentiment follows remarks from US President Donald Trump, who ruled out an immediate military response against Iran, saying, “there will not be a strike today,” according to Al Jazeera. The easing in geopolitical tensions has undermined the recent defensive bid in the USD.

Oil Price Reaction and Implications for the Canadian Dollar

Trump’s comments have also taken steam out of the recent rally in crude oil. With upside pressure in oil prices subsiding, the commodity-linked Canadian Dollar (CAD) may face renewed headwinds. Softer oil prices could therefore curb CAD gains and help limit further downside in USD/CAD, even as risk sentiment stabilizes.

Canadian Growth Outlook: Momentum Seen Slowing in Q3

Analysts at Royal Bank of Canada point to persistent domestic demand weakness as a drag on Canada’s economic performance. They emphasize that “housing markets remain weak” heading into the late-summer data releases.

Looking ahead, they expect the August gross domestic product figures due next Friday to “should confirm that growth slowed in Q3 after surging in Q2,” reinforcing their assessment that the economy has downshifted following a period of strong activity earlier in the year.

Fed Policy Expectations Anchor Rate Markets

Market participants are increasingly focused on the upcoming Federal Reserve policy announcement. The central bank is widely expected to leave interest rates unchanged at its next meeting before considering another rate increase in December.

Data from the CME FedWatch Tool show that traders currently price in a 90.6% probability that the Fed will keep rates on hold at its October 27-28 meeting, alongside a 79.7% likelihood of a rate hike in December.

Diverging Safe-Haven Flows Across G10 FX

Strategists at OCBC note that safe-haven demand is no longer monolithic across the G10 foreign exchange landscape. Instead, they observe that different types of shocks are channeling flows into different currencies.

They state that “AI jitters favour JPY, Middle East tensions support CAD and NOK, while French fiscal stress benefits CHF,” highlighting how technology concerns, regional geopolitical developments, and fiscal issues in specific countries are creating distinct patterns of defensive positioning.

Technical Picture: Bearish Tone Persists for USD/CAD

On the daily chart, USD/CAD is trading at 1.4000 and maintains a bearish near-term technical stance. The pair remains below both the nine- and 50-period Exponential Moving Averages (EMAs), which continue to cap recovery attempts and reflect lingering downside pressure.

Momentum indicators are aligned with this softer tone. The 14-day Relative Strength Index (RSI) stands at 37, leaning toward the oversold area and signaling waning bullish momentum rather than a clear bullish reversal.

On the upside, the 50-period EMA at 1.4067 provides the first resistance hurdle, closely followed by the nine-period EMA at 1.4073. A more substantial ceiling is seen near the horizontal level at 1.4300.

On the downside, initial support is located at 1.3732, with a more significant structural base at 1.3482. Only a sustained move below these supports would signal scope for a deeper corrective leg lower in USD/CAD.