During Friday's Asian trading session, the USD/CAD pair extended its decline, trading around 1.4210 and falling for a second consecutive day.

Signs of easing tensions between the United States and Iran have reduced market concerns over a near-term military escalation, weakening the dollar's safe-haven appeal and putting downward pressure on the currency pair.

However, a pullback in crude oil prices could cap the Canadian dollar's upside, while Federal Reserve officials continue to stress the need for further monetary tightening, meaning the dollar has not lost its fundamental support.

US President Trump stated that the United States is engaged in "productive discussions" with Iran and said no attack on Iran would occur before the US midterm elections.

These remarks eased market worries about further deterioration in the geopolitical situation, thereby cooling demand for the dollar as a safe haven.

At the same time, Trump said that despite a record volume of crude oil currently passing through the Strait of Hormuz, the US naval blockade of Iranian ports will still be fully enforced.

This means that while the market has reduced its concerns about a short-term escalation, it still faces uncertainty over energy transportation and regional supply.

Oil price movements are an important variable affecting the USD/CAD trend.

Canada is a major energy exporter, and crude oil prices typically influence the Canadian dollar through trade income, corporate profits, and market risk appetite.

Weaker oil prices could erode the commodity currency support for the Canadian dollar, thereby limiting the downside for USD/CAD.

Therefore, even if the dollar comes under pressure from diminished safe-haven demand, the pair may not necessarily continue its one-way decline, and oil price movements could remain a key factor determining the Canadian dollar's performance.

Federal Reserve policy expectations also influence the dollar's medium-term direction.

According to the CME FedWatch Tool, the market-implied probability of the Fed raising rates by at least 25 basis points at this month's meeting has fallen from 38% a week ago to about 17.7%, while the probability of a rate hike at the December meeting remains around 83%.

This indicates that market bets on a near-term rate hike have cooled somewhat, but expectations for further tightening within the year remain relatively high.

The divergence between declining short-term safe-haven demand and hawkish medium-term rate expectations creates competing forces for the dollar's trajectory.

Comments from Federal Reserve officials further highlight the hawkish tilt in policy stance.

Musalem said monetary policy may still need to be tightened further to bring inflation back to the 2% target in a timely manner.

He noted that the US economy is performing relatively strongly, the job market is generally stable, and demand-side pressures persist.

In addition, artificial intelligence-related investment and capital demand could provide structural support for interest rates, and the sustainability of the fiscal path could also affect long-term yields.

These remarks suggest that even if the market has lowered the probability of a rate hike this month, it cannot be concluded that the Fed has shifted toward easing.

Waller's position is even more explicit.

He believes further rate hikes are still necessary, but they do not necessarily need to be consecutive.

AI investment, energy shocks, and a robust job market could all keep inflationary pressures persistent.

Such comments reinforce expectations that interest rates will remain elevated for an extended period, which theoretically supports the dollar.

However, if the market focuses more on easing geopolitical tensions and declining safe-haven demand in the short term, the supportive effect of hawkish policy signals on the dollar may be temporarily diminished.

Analysts at Scotiabank believe that recent Canadian dollar movements suggest the market is entering a phase of consolidation and reassessment.

After the Canadian dollar previously experienced significant weakness, investors may be re-evaluating the short-term direction of USD/CAD.

This view suggests that the current pullback in the pair does not necessarily mean the medium-term trend has completely reversed, but more likely reflects the market searching for a new equilibrium between changes in dollar safe-haven demand, rate expectations, and crude oil prices.

Overall, USD/CAD currently faces a tug-of-war between two main themes: easing geopolitical tensions weaken the dollar's safe-haven demand, while falling oil prices could pressure the Canadian dollar.

At the same time, the Fed's hawkish stance helps limit the dollar's downside.

Future trading direction still depends on whether crude oil prices can stabilize, whether market expectations for a Fed rate hike this year continue to shift, and whether dollar safe-haven demand can further recede.

From daily and short-term indicators, USD/CAD remains in a bearish configuration.

Technical indicators from October 9 show the pair trading around 1.4210, with the 14-day Relative Strength Index (RSI) at approximately 35.6, the MACD in negative territory, and most short- and medium-term moving averages issuing sell signals, indicating that downside momentum remains dominant.

However, some oscillators such as the Stochastic RSI have entered oversold territory, and if bears take profits, a short-term technical rebound cannot be ruled out.

On the short-term front, 1.4200 constitutes an initial support zone.

If the pair effectively breaks below this range, it may test lower psychological levels.

If support holds temporarily, attention should be paid to whether the pair can reclaim the pivot level around 1.4260.

On the upside, resistance is first seen at the 1.4260 area, and if buying interest strengthens further, the 1.4290 level could come into focus.

Editor's Summary

USD/CAD has declined for two consecutive days, reflecting the market's reassessment of geopolitical risks, dollar safe-haven demand, and the Fed's rate path.

The US and Iran have sent signals of de-escalation, putting short-term pressure on the dollar.

However, falling oil prices could weaken the Canadian dollar's energy support, while Fed officials' insistence on further tightening also limits the scope for sustained dollar weakness.