Canadian Dollar holds ground as oil prices surge

• USD/CAD remains steady amid rising crude oil prices, offering tailwinds for the both currencies.
• Geopolitical tensions and Strait of Hormuz shipping disruptions drive oil up over 10% this month.
• Ongoing US-Iran peace negotiations and Fed Chair Warsh’s neutral rate stance keep traders cautious.

USD/CAD moves little after four days of losses, trading around 1.4060 during Asian hours on Wednesday. The currency pair maintains its stance as the US Dollar (USD) stays firm amid rising oil prices that have heightened inflation concerns and driven safe-haven demand.

However, the commodity-linked Canadian Dollar (CAD) is also positioned to gain strength from higher crude prices, which may constrain further upside for the USD/CAD pair. Crude oil prices advanced as traders weighed mixed reports regarding diplomatic efforts between the United States (US) and Iran.

While negotiations remain active, market sentiment faced headwinds following high-level diplomatic meetings. Pakistan’s army chief, Field Marshal Asim Munir, met with senior Iranian diplomatic and military leaders in Tehran to discuss bilateral relations and the status of talks with Washington. Clarifying the situation, a diplomat involved in the discussions confirmed that efforts to resolve the conflict are ongoing, while dismissing reports that a final agreement was imminent.

Crude oil prices have surged more than 10% this month due to compounding global supply risks. Escalating tensions involving Saudi Arabia, Iran-backed Houthi forces, Russia, and Ukraine have heightened geopolitical risks, further amplified by at least 18 vessel attacks in the Strait of Hormuz over the past two weeks. Nevertheless, energy infrastructure has demonstrated resilience, with Middle Eastern oil flows recovering to roughly 80% of prewar levels.

Meanwhile, financial markets continue to gauge the Federal Reserve’s monetary policy trajectory in the wake of recent comments from Fed Chair Kevin Warsh. Chair Warsh emphasized that he does not “prejudge” interest rate decisions, leaving traders without a clear signal on whether the central bank will raise or hold rates steady at its upcoming October policy meeting.

Technical Analysis:

In the daily chart, USD/CAD trades at 1.4060, keeping a bearish near-term tone as spot holds beneath both the 50- and nine-day Exponential Moving Averages (EMAs). The 14-day Relative Strength Index (RSI) has retreated to around 42.7, hinting at fading upside momentum after the recent pullback from the highs, while the FXS Fed Sentiment Index’s latest print near 127.5 suggests a more subdued policy premium compared with earlier in the rally.

On the topside, initial resistance is aligned with the 50-day EMA at 1.4075, followed by firmer supply around the nine-day EMA at 1.4140, which together cap recovery attempts. A more significant barrier remains the horizontal resistance line at 1.4794, where the broader uptrend would face a major test if bulls attempt a renewed extension.

Warsh cautious on crisis scars but upbeat on investment surge and AI

Fed Chair Warsh delivered a moderately constructive but not overly hawkish tone, with the FXS Speechtracker score at 5.6/10, slightly softer relative to the historical average of 6.1/10. The admission of being “over-scarred from the global financial crisis” underscores a lingering bias toward caution on financial stability even as Warsh highlights structural growth and an investment surge driven by “good policies.” Warsh’s focus on AI as a near-term demand force and a tool to strengthen data confidence, alongside an unwillingness to pre-judge upcoming meetings, points to a data-dependent stance that tempers policy signaling for the Dollar.

The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated level of 127.51, signaling that the speech leaves the broader policy narrative firmly in hawkish territory despite the slightly softer FXS Speechtracker score. For FX markets, the combination of high index readings and Warsh’s cautious crisis scars suggests the Dollar remains underpinned by expectations of continued vigilance on inflation and financial stability rather than an imminent dovish pivot.

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