USD/CAD Extends Rally Ahead of BoC and Fed Decisions

Key Moments

USD/CAD continues its recovery for a second session, advancing beyond the mid-1.4000 region after rebounding from the 1.3970-1.3965 area.
Markets are pricing in more than an 80% probability of a December Fed rate hike, while the BoC is expected to raise its policy rate by 25 bps.
Geopolitical tensions and firm crude oil prices are simultaneously supporting the US Dollar and the Canadian Dollar, creating a complex backdrop for USD/CAD.

USD Strength Drives USD/CAD to Weekly Highs

The USD/CAD currency pair is gaining traction for a second consecutive session on Wednesday, extending its advance from the 1.3970-1.3965 band, identified as the lowest level since September 16. Spot prices are moving further above the mid-1.4000 area and have reached a new weekly high during the Asian session as participants position themselves ahead of major central bank announcements.

The upswing in the pair comes as the US Dollar pushes to a two-week high, supported by expectations of additional Federal Reserve tightening and a pickup in demand for safe-haven assets. This renewed USD strength is occurring even as oil prices remain firm, which typically supports the Canadian Dollar and can limit upside in USD/CAD.

Central Bank Decisions in Focus: BoC and Fed

Attention is now turning to the upcoming interest rate decision from the Bank of Canada (BoC), where market consensus points toward a 25-basis-point increase. However, the primary focus for global investors remains the conclusion of the Federal Open Market Committee (FOMC) meeting and subsequent remarks from Federal Reserve Chair Kevin Warsh.

In addition, investors are closely watching key US macroeconomic releases scheduled for Thursday, including the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index. These data points are expected to provide further insights into the Federal Reserve’s policy trajectory and are likely to influence US Dollar dynamics, with knock-on effects for the USD/CAD pair.

Rate Expectations and Geopolitical Tensions Support the USD

According to the CME Group’s FedWatch Tool, market participants are currently assigning more than an 80% probability that the US central bank will implement another rate hike in December, reflecting ongoing inflation concerns related to elevated energy prices. These expectations are lending additional support to the US Dollar.

At the same time, geopolitical risk remains elevated. Stalled US-Iran talks and renewed attacks on Saudi Arabia are sustaining a risk premium that has underpinned safe-haven demand for the USD for four straight sessions. This backdrop has helped the Dollar attract continued buying interest.

Yet, higher crude oil prices are offering support to the commodity-linked Canadian Dollar, potentially tempering further gains in USD/CAD. This tug-of-war between a stronger USD and firmer oil-linked CAD suggests that upside in the pair may face resistance, prompting a degree of caution among bullish traders.

Middle East Developments Bolster Oil and Risk Premium

Geopolitical headlines are also influencing energy markets. The Wall Street Journal reported on Tuesday that the US told several Gulf Arab countries to prepare for a short and intense military campaign against Iran after the November 3 midterm elections. In a separate development, Iran-backed Houthis in Yemen claimed responsibility for targeting Saudi Arabia’s defense ministry in Riyadh with a ballistic missile, stating that the strike was direct.

Meanwhile, ongoing deadlock in US-Iran negotiations is amplifying concerns about further escalation in the Middle East. These factors have helped crude oil prices attract renewed buying interest after a two-day corrective pullback from a multi-month high reached last Friday, adding another layer of support to the Canadian Dollar.

USD/CAD Technical Outlook

From a technical standpoint, USD/CAD is maintaining a constructive intraday tone above the 100-period Exponential Moving Average (EMA) on the 4-hour chart and the 23.6% Fibonacci retracement level.

Technical Level	Type	Level
Immediate resistance	38.2% Fibonacci retracement	1.4095
Next resistance	50% Fibonacci retracement	1.4134
Further resistance	61.8% Fibonacci retracement	1.4173
Initial support	23.6% Fibonacci retracement	1.4046
Secondary support	100-period EMA (4-hour)	1.4036
Key lower support	Structural floor	1.3968

On the upside, the first notable resistance is situated at the 38.2% Fibonacci retracement at 1.4095, followed by the 50% retracement at 1.4134 and the 61.8% level at 1.4173. On the downside, immediate support is located at the 23.6% retracement at 1.4046, ahead of the 100-period EMA at 1.4036. A more pronounced correction would bring the structural floor around 1.3968 back into focus.