USD/CAD Rally Continues Amid Weak Oil and Geopolitical Tensions

The USD/CAD pair has extended its nearly one-month rally, hovering around 1.4260 during Asian trading hours on Tuesday, October 6. After reaching 1.4292 on Monday, the exchange rate slightly retraced but regained buying support. The Canadian dollar is facing pressure from weak crude oil prices, the Bank of Canada's dovish policy stance, and escalating U.S.-Canada trade tensions.

Crude oil prices are near a one-month low, directly undermining Canada's terms of trade. Middle Eastern exports remain strong, and the G7's release of 100 million barrels from emergency reserves has eased supply concerns. As a major energy exporter, Canada's economy is highly sensitive to oil price fluctuations, which has left the loonie lagging behind other commodity currencies.

The U.S. dollar is gaining strength from geopolitical risks, including Houthi attacks on Saudi targets and potential Israeli strikes against Iran. U.S. Treasury yields remain near multi-year highs, supporting the greenback. Traders are pricing in an over 80% probability of a Fed rate hike by year-end, awaiting the FOMC meeting minutes for further policy insights.

Despite a slight pullback after hitting a high since April 2025, the path of least resistance for USD/CAD remains upward. The 1.4300 level serves as a critical short-term resistance, with support around 1.4200. Oil price dynamics, the FOMC minutes, and geopolitical developments will shape the near-term direction.