Canadian Dollar falls as oil prices dip, US Dollar gains strength

USD/CAD rebounds after registering losses in the previous day, trading around 1.4230 during the Asian hours on Friday. The currency pair continues to gain ground as the US Dollar (USD) receives strong support. This momentum is driven by persistent inflation concerns stemming from elevated energy costs, alongside market expectations of higher US interest rates.

Ahead of Friday’s release of the US September employment data, traders are paying close attention for signals regarding the future direction of Federal Reserve (Fed) monetary policy. Economists project Nonfarm Payrolls to show an addition of 90,000 jobs, marking a slowdown from the 162,000 recorded in the previous month, while the Unemployment Rate is expected to remain unchanged at 4.1%.

Meanwhile, the USD/CAD pair’s upward momentum is being reinforced by weakness in the commodity-linked Canadian Dollar, which is coming under pressure due to falling crude oil prices. Oil prices recently pulled back as regional supply flows from the Middle East largely recovered to prewar levels.

However, market participants remain skeptical that this supply recovery can be sustained without a formal agreement to end the conflict, especially following attacks on at least three tankers in the Strait of Hormuz and repeated strikes on regional refineries by Iran and its Houthi allies.

Looking ahead, crude prices could quickly rebound as geopolitical tensions flare up again. The US is considering the deployment of another aircraft carrier to the Middle East, escalating the risk of broader conflict with Iran and threatening further disruption to energy supplies. Additionally, the Pentagon is evaluating the deployment of 10,000 sailors and Marines to the Persian Gulf, giving President Donald Trump expanded operational flexibility should he choose to intensify military action against Iran, strikes he has reportedly signaled could resume after the November midterm elections.

BoC seen in no rush to hike despite flat Canada growth

According to TD Securities, the latest data showing "flat growth in July" reinforces the view that there is "no compelling reason for the BoC to rush into rate hikes in October." The firm argues that, while activity has stalled on a month-on-month basis, the current backdrop does not warrant an accelerated tightening timetable, and instead supports a more measured approach to future policy moves.