Canadian Dollar strengthens despite easing oil pressure

USD/CAD loses ground for the third consecutive day, trading around 1.3970 during Asian hours on Friday. The pair depreciates despite renewed Middle East diplomatic efforts easing pressure on oil markets, placing downward pressure on the commodity-linked Canadian Dollar (CAD).

Crude oil prices held steady following a Wall Street Journal report disclosing that US Vice President JD Vance reached out on Wednesday to Mohsen Rezaei, Secretary of Iran's Supreme National Security Council, in an effort to restart peace talks. US President Donald Trump confirmed he approved Vance's diplomatic outreach, adding that Iran needs assistance with medical supplies and other essential resources.

The US Dollar (USD) faces pressure on easing safe-haven demand amid hopes for US-led diplomatic peace talks. Easing Middle East tensions have helped offset oil supply and inflationary concerns, dampening expectations for a Federal Reserve (Fed) rate hike at its December meeting. Traders are now pricing in a nearly 75% chance of a 25-basis-point rate increase, down from 84.2% a day prior.

However, recent US economic data highlights continued resilience and increased Fed rate hike bets. Preliminary Gross Domestic Product printed at 3.4% YoY, beating expectations of 3.2% and rising from Q2's 2.2% reading, driven by strong consumer spending at 3.8% YoY. Furthermore, the Fed’s preferred inflation metric, the Core PCE Price Index, rose 3.1% YoY in line with expectations, while initial jobless claims dipped slightly to 194K, reinforcing signs of a heating economy and a tight labor market.

Technical Analysis:

In the daily chart, USD/CAD trades at 1.3970, holding a bearish near-term bias as it remains below the nine- and 50-day Exponential Moving Averages (EMAs). The pair has retreated from recent highs and now trades under this short-term and medium-term moving average cluster, suggesting upside is capped for the moment, while the 14-day Relative Strength Index (RSI) at 36 leans toward weak momentum rather than outright oversold conditions.

On the topside, immediate resistance is located at the nine-day EMA at 1.4027, followed by the fifty-day EMA at 1.4057, with a more significant barrier at the horizontal level near 1.4300. On the downside, initial support appears at the 1.3732 horizontal floor, ahead of a deeper structural level at 1.3482, where buyers would be expected to show stronger interest if the current decline extends.

BoC hike seen as modestly hawkish, nudging rate expectations higher

Strategists at Scotiabank note that the Bank of Canada’s mid-week move was not only about the decision itself but also about the tone accompanying it. They highlight that the BoC’s hike on Wednesday was “delivered with a modestly hawkish message” which, in their view, “ultimately delivered a slight boost in rate expectations across the curve,” reinforcing support for the Canadian Dollar against its commodity peers.