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- USD/CAD moves little as recovering WTI prices enhance Canada’s export revenues.
- Democratic election victories spark gridlock expectations and hopes for Iran diplomacy, keeping the safe-haven dollar subdued.
- Traders await key US employment data to gauge the Fed’s December rate stance.
USD/CAD moves little after registering modest gains in the previous day, hovering around 1.4010 during Asian hours on Friday. The pair may lose ground as the commodity-linked Canadian Dollar (CAD) gains support from higher oil prices. As one of the world’s largest oil producers and a major exporter to the United States (US), Canada benefits directly from rising crude markets. Higher oil prices traditionally strengthen the CAD by improving the country’s export revenues and terms of trade, whereas falling prices tend to exert downward pressure on the currency.
Meanwhile, West Texas Intermediate (WTI) crude has gained traction as traders assess recovering Middle Eastern supplies alongside the geopolitical outlook following the US midterm elections. Crude prices extended their recovery after Wednesday’s sell-off, driven partly by the Democrats sweeping both the House and the Senate. This political shift prompted speculation that US President Donald Trump might face increased pressure to end the eight-month conflict with Iran. However, prospects for a swift resolution remain uncertain as market participants reconsider whether the election outcomes will truly lead to a quick end to the war.
Meanwhile, the USD/CAD pair remains steady as the US Dollar (USD) finds support in widespread market caution ahead of key economic data. Investors are awaiting the US Nonfarm Payrolls (NFP) report, which is expected to play a critical role in shaping market expectations for the Federal Reserve’s December policy decision.
Countering that dollar support, recent declines in US bond yields and lingering hopes for diplomatic progress with Iran continue to keep the safe-haven greenback on the back foot. Additionally, the Democrats’ victory has raised expectations of political gridlock in Washington, which could constrain government spending and ultimately lead to slower economic growth.
Strategists at OCBC caution against reading too much into the post-election Dollar weakness, warning that they “would be cautious about extrapolating the initial USD sell-off into a sustained decline.” They argue that while Democrats have secured control of Congress, this “does not mean unrestricted policy power,” with “major legislation” still “vulnerable to President Trump’s veto.” OCBC also underscores that Democrats “lack the two-thirds majorities in both chambers needed to override it,” suggesting that the scope for transformative policy shifts remains constrained and, by extension, limiting the case for a structurally weaker USD at this stage.
