Higher oil prices bolster Canadian Dollar

• 1.4025 is the latest level approached by USD/CAD. The pair extends its decline in early European trading on Thursday.
• A BoC rate increase is expected by economists at next week’s meeting.
• Progress in talks with the US appears unlikely, Iran indicated.

1.4025 is where USD/CAD is trading as it retreats. During Thursday’s early European session, the pair reaches its lowest level since 21 September. Elevated crude oil prices support the commodity-linked Canadian Dollar (CAD) against the US Dollar (USD). Later on Thursday, the US will release its weekly Initial Jobless Claims figures. Attention on Friday will turn to Canada’s Retail Sales and the US Purchasing Managers Index (PMI) reports.

After roughly a year of unchanged key interest rates, the Bank of Canada (BoC) could resume tightening at next week’s policy meeting, according to some economists. Such a move would mark its first rate increase in more than three years.

An 80% chance of a 25 basis points (bps) increase in the Canadian central bank’s benchmark rate to 2.50% on 28 October is priced into swap markets, Reuters reports.

Deepening US-Iran tensions also drove a jump in crude oil prices. According to the Financial Times, Iranian Foreign Minister Abbas Araqchi saw little prospect of progress in discussions with Washington and said Tehran was fully prepared to defend itself.

Continued US threats and a blockade were incompatible with expectations that Tehran would enter dialogue, Iranian President Masoud Pezeshkian said. As Canada is a major oil exporter, elevated crude prices typically support the Loonie.

2.5% US growth outlook: USD/CAD pressured as IMF flags wider North American gap

The IMF’s latest forecasts point to an increasingly divergent North American outlook, according to strategists at Societe Generale. The Fund projects US growth of “2.5% this year (while remaining at 2.1% in 2027),” contrasting with a considerably weaker Canadian outlook. The strategists say “the North American growth gap is widening,” noting that while “the chart on the right shows relative Bloomberg consensus growth forecasts for 2027, … the IMF’s assessment (1.2% growth in Canada next year versus 2.1% in the US) is even less favourable for Canada.” Turning to policy and markets, Societe Generale observe that “the chart on the left shows the two-year rate differential plotted against USD/CAD,” highlighting how relative interest rate expectations influence the Canadian Dollar.

5.6/10 Warsh score: Investment and AI in focus, Fed decisions left open

At 5.6/10, Fed Chair Warsh’s FXS Speechtracker score was slightly below the historical average of 6.1/10. His moderately cautious remarks suggested marginally less conviction than the established baseline. Warsh acknowledged being “over-scarred” by the Global Financial Crisis while highlighting structural growth, a surge in investment and forthcoming “crystalizing” meetings. Together, these remarks signal a risk-aware approach: optimism over investment and AI is balanced against downside risks and financial stability concerns. By declining to commit in advance to October and December decisions and stressing uncertainty over AI’s near-term employment effects, Warsh maintained a data-dependent stance. That limits any explicitly hawkish signal for the Dollar.

A move of 0.00 points left the FXS Fed Sentiment Index unchanged at an elevated 127.51. Despite the slightly softer FXS Speechtracker score, the wider policy message therefore remains firmly hawkish. Holding above 100, the index suggests markets still price in a Fed focused on price stability and alert to upside risks from investment and AI. Near-term guidance, however, remains deliberately non-committal.

Technical Analysis: 100-day SMA Keeps USD/CAD Under Bearish Pressure

The 1.4040-1.4045 area offers the first resistance, where the lower Bollinger band and 100-day moving average sit. Sustained buying beyond this zone would reduce immediate selling pressure, allowing a move towards the Bollinger midline around 1.4190 and then the upper band near 1.4330. 

The psychological 1.4000 mark provides key support. Below it, attention turns to 1.3912, the high recorded on 31 August, followed by the 8 September low at 1.3760. 

(The technical analysis of this story was written with the help of an AI tool. Know more.)