Canadian Dollar weakens as oil prices climb

• Elevated US CPI inflation lifts the US Dollar, pushing USD/JPY higher.
• A December rate rise carries a probability of nearly 91%, according to the CME FedWatch Tool.
• Higher oil prices could lend support to the commodity-linked Canadian Dollar.

Markets assign approximately a 91% probability to a Federal Reserve rate rise next month, according to the CME FedWatch Tool, after the latest inflation report cemented expectations for an increase in December. The resulting strength in the US Dollar (USD) is keeping USD/CAD on the front foot for a second consecutive day, with the pair trading around 1.4190 in Wednesday’s Asian session.

October’s US Consumer Price Index increased by 0.4% month-on-month, exceeding the 0.3% forecast despite easing from September’s 0.6% rise. Excluding food and energy, Core CPI advanced 0.3%, unchanged from September’s pace and above the 0.2% estimate. Owing to last year’s government shutdown, the Bureau of Labor Statistics did not publish annual figures for October.

Although the inflation readings favour the Greenback, fading demand for safe-haven assets could weigh on the currency as prospects for a diplomatic resolution to the US-Iran conflict improve. Further military strikes against Iran might no longer be needed, US President Donald Trump indicated, while US Secretary of State Marco Rubio told a G7 meeting that major combat operations were no longer required. Congressional Democrats, meanwhile, are considering whether to use the approaching government funding deadline to steer the Trump administration towards a peaceful resolution.

Higher oil prices could support the commodity-linked Canadian Dollar (CAD), potentially limiting further gains in USD/CAD. Following two days of declines, West Texas Intermediate (WTI) is recovering and trades around $85.70 per barrel at the time of writing.

Signs that US-Iran tensions are easing could, however, put downward pressure on crude prices. Optimism over a possible diplomatic settlement increased after US President Donald Trump suggested that further military strikes against Iran might no longer be needed. At the same time, Congressional Democrats are weighing whether to use the forthcoming government funding deadline to press the Trump administration to end the conflict.

Dollar finds support as Goolsbee’s ‘real inflation issue’ warning reinforces hawkish Fed tone

At 8/10, the FXS Speechtracker score for the Fed’s Goolsbee stood markedly above the historical average of 6.8/10, reflecting a distinctly more hawkish message and greater concern over persistent price pressures. Describing the latest CPI as “borderline disturbing,” Goolsbee stressed that services inflation is “not coming down,” and that there is “a real inflation issue” the Fed is “going to have to deal with”. Alongside his description of the labour market as “steady and stable,” these remarks indicate a clear readiness to tighten policy further if necessary. Persistent concerns over inflation, coupled with a resilient labour market, support the Dollar and weaken the case for near-term policy easing.

A 1.69-point increase took the FXS Fed Sentiment Index to 145.61, leaving the overall policy stance firmly hawkish and comfortably above the neutral level of 100. Alongside the elevated FXS Speechtracker score, the index’s rise suggests that markets should price in a higher-for-longer Fed policy path. Such an outlook typically supports the Dollar while weighing on currencies sensitive to risk appetite.

(The technical analysis of this story was written with the help of an AI tool. Know more.)