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The USD/CAD currency pair is balancing near the 200-day EMA at around 1.3960, having failed to build on intraday momentum. Opposing drivers shape the instrument's dynamics. A decline in crude oil prices at the start of the new trading week weighs on the Canadian dollar, which is closely tied to that commodity — preventing the pair from falling further. At the same time, reduced investor demand for safe-haven assets is weighing on the US dollar, keeping the pair near Friday's low, which was the weakest level since September 16.
According to reports, Iranian negotiators on Sunday held talks for the third consecutive day with mediators from Qatar, discussing an agreement that could end US–Israeli military actions against Iran. In addition, Tehran proposed an initiative to restore shipping through the Strait of Hormuz within 48 hours, provided the United States meets a set of demands. US President Donald Trump said negotiations with Iran are progressing successfully and that Tehran is interested in striking a deal.
These developments largely offset the effect of the Bank of Canada's unexpected shift toward tighter monetary policy, creating obstacles to a stronger Canadian dollar.
Meanwhile, the US dollar is under pressure amid optimism about a likely diplomatic resolution of the Middle East conflict. Nevertheless, the geopolitical risk premium remains, since Donald Trump has not ruled out further military action after the midterm elections scheduled for November 3.
Moreover, Iran's supreme leader Ali Khamenei ordered the top military command to prepare for renewed confrontation and to expand Iran's options for retaliation. Therefore, oil-market risks remain tilted to the upside despite the current decline, given persistent tensions near the Strait of Hormuz.
MUFG/BTMU analysts note that from a market perspective "the distribution of risks for oil remains asymmetric." They acknowledge that successful diplomacy could "reduce the geopolitical premium," but warn that "new military escalation or further disruptions near the Strait of Hormuz could trigger a sharper price rise." This highlights the vulnerability of energy-importing countries.
In addition, market participants price in roughly a 75% probability that the US Federal Reserve will raise interest rates again in December. This could further boost the US dollar and support the USD/CAD pair.
Ahead of important macro releases from the United States scheduled for the start of the month, traders may take a wait-and-see stance. Attention should be focused on monthly labor-market reports for Canada and the US — in particular nonfarm payrolls (NFP) data due on Friday.
From a technical standpoint, in the short term the USD/CAD pair remains in a bearish mood, trading below the 100-day simple moving average (SMA) at 1.4047. Current quotes are hovering near the 200-day EMA.
A dense resistance zone formed by a cluster of moving averages, including the 100-day SMA, suggests that any attempts to rally will likely face selling pressure in this area. To reduce selling pressure, bulls need to overcome this zone. Nearest support is provided by the 200-day EMA; below it, the round level of 1.3900 and the 200-day SMA will offer support. With oscillators still negative, bears have the advantage.