USD/CAD Drops as Peace Hopes Curb US Dollar Demand

Key Moments

USD/CAD trades around 1.3970 in Asia, marking a third straight session of declines.
Expectations for a December Fed rate hike ease, with pricing for a 25-basis-point move slipping to nearly 75% from 84.2% a day earlier.
Recent US data show solid GDP growth of 3.4% YoY and Core PCE at 3.1% YoY, underlining a resilient economy and tight labor market.

Market Overview

USD/CAD continues to edge lower for the third session in a row, trading near 1.3970 during Asian trading on Friday. The pair is sliding even as fresh diplomatic initiatives in the Middle East lessen upward pressure on crude, a development that would typically weigh on the commodity-linked Canadian Dollar (CAD).

Crude benchmarks were broadly stable after a Wall Street Journal article reported that US Vice President JD Vance contacted Mohsen Rezaei, Secretary of Iran’s Supreme National Security Council, on Wednesday in an attempt to revive peace negotiations. US President Donald Trump stated he had authorized Vance’s outreach and noted that Iran requires support with medical supplies and other essential goods.

Dollar Dynamics and Fed Expectations

The US Dollar (USD) is under pressure as safe-haven flows ease amid optimism around US-led diplomatic engagement. Reduced concern about Middle East tensions has tempered worries over oil supply disruptions and inflation, in turn softening expectations for additional Federal Reserve (Fed) tightening at the December meeting.

Market pricing now reflects nearly a 75% probability of a 25-basis-point hike in December, down from 84.2% just a day earlier. This shift signals some moderation in hawkish bets even as the macro backdrop in the United States remains firm.

Resilient US Data Support Underlying Economy

Recent US releases underscore ongoing economic strength, which has also been feeding into Fed rate expectations. Preliminary Gross Domestic Product came in at 3.4% YoY, exceeding the 3.2% consensus and accelerating from 2.2% in the previous quarter, helped by robust consumer spending of 3.8% YoY.

The Fed’s favored inflation gauge, the Core PCE Price Index, rose 3.1% YoY, matching forecasts. At the same time, initial jobless claims edged down to 194K, reinforcing the narrative of a still-heating economy paired with a tight labor market.

Technical Picture: Bearish Tilt Persists

On the daily time frame, USD/CAD is trading around 1.3970 with a negative short-term bias, as the pair holds beneath both the nine-day and 50-day Exponential Moving Averages (EMAs). The pullback from recent highs has left spot below this near-term and medium-term EMA cluster, indicating that upside attempts are constrained for now. The 14-day Relative Strength Index (RSI) sits at 36, reflecting soft momentum but stopping short of signaling oversold conditions.

Technical Level	Type	Level
Nine-day EMA	Immediate resistance	1.4027
Fifty-day EMA	Next resistance	1.4057
Horizontal barrier	Key resistance	1.4300
Horizontal floor	Initial support	1.3732
Structural level	Deeper support	1.3482

On the upside, the nine-day EMA at 1.4027 forms the first barrier, with the 50-day EMA at 1.4057 acting as the next cap. A more prominent resistance zone emerges near the horizontal level at 1.4300.

On the downside, initial support is seen at the horizontal area around 1.3732. Below that, a more meaningful structural support sits at 1.3482, where dip-buying interest would likely be stronger if the current move lower extends.

BoC Stance and CAD Support

Strategists at Scotiabank emphasize that the impact of the Bank of Canada’s (BoC) mid-week decision extended beyond the rate move itself to the central bank’s communication. They underline that the BoC’s action on Wednesday was “delivered with a modestly hawkish message” which, in their assessment, “ultimately delivered a slight boost in rate expectations across the curve,” providing an element of support for the Canadian Dollar relative to other commodity-linked currencies.