USD/CAD falls as lower Treasury yields and higher oil prices lift the Canadian Dollar

• Lower US Treasury yields weigh on the US Dollar, pushing USD/CAD down.
• Democrats are ahead of Republicans in early US House calls as initial midterm election results emerge.
• Crude oil gained as US-Iran diplomatic talks continued alongside conflicting signals over possible military action.

US 2-year Treasury yields have declined five basis points to 4.566%, while the benchmark 10-year yield has dropped six basis points to 4.90%. With yields falling across the curve and the US Dollar (USD) weakening, USD/CAD has reversed two days of gains to trade near 1.3970 during Wednesday’s Asian session.

The midterm elections are providing a key verdict on President Donald Trump's second term as US citizens cast their votes. With polls closing in the early states, live figures from Decision Desk HQ show that 201 of the 435 US House seats have been called. Democrats have secured 124 seats, compared with 77 for Republicans.

Higher crude oil prices are also supporting the commodity-linked Canadian Dollar (CAD), adding to the downward pressure on USD/CAD. Oil has climbed as investors assess the continuing US-Iran peace talks. According to Qatar’s Foreign Ministry spokesperson, both countries are considering fresh proposals from mediators aimed at narrowing their differences. Iran’s national security chief, however, said on social media that Washington’s response remained unsatisfactory.

The Financial Times reported that Donald Trump said the US had no immediate plans to attack Iran and appeared to be meeting its objectives. Although the US remained prepared to act if needed, he suggested a strike might prove unnecessary. His remarks came despite Israeli Prime Minister Benjamin Netanyahu signalling possible military action later this week.

Canadian Dollar takes its cue from US midterms as domestic releases thin out

With few near-term catalysts on Canada’s economic calendar, Scotiabank analysts observe that "the domestic release calendar is limited ahead of Wednesday’s trade data, and near-term risk will center on the US midterms and their impact on the broader tone." Broader market sentiment towards US political developments therefore remains the principal influence on the Canadian Dollar over the coming sessions.