• USD/CAD falls as the US Dollar struggles amid reduced safe-haven demand after Trump reported “productive” Iran talks and paused pre-election strikes.
• The commodity-linked CAD may struggle amid lower oil prices following Trump’s remarks.
• Leaked reports indicated the US had prepared three-day strike plans targeting Iranian military and energy infrastructure.

USD/CAD extends its losses for the second successive day, trading around 1.4210 during Asian hours on Friday. The pair depreciates as the US Dollar (USD) loses safe-haven demand, following statements from US President Donald Trump on social media, where he announced that the US was engaged in “productive discussions” with Iran and would refrain from attacking the country prior to the midterm elections.

Markets are now pricing in nearly a 17.7% chance that the US central bank will lift the interest rate at least 25 basis points (bps) at the policy meeting later this month, down from 38% a week ago, the CME FedWatch tool showed. Markets are pricing in an 83% chance of a hike at the Fed’s December meeting.

Fed’s Musalem flags need for further tightening as strong demand keeps rates elevated

Fed’s Musalem delivers a slightly more hawkish-than-usual message, with the 7.3/10 FXS Speechtracker score just above the 7.2/10 historical average, underscoring continuity rather than a regime shift in tone. The emphasis that “more monetary policy firming will be required” to return inflation to 2% promptly, alongside comments that the economy is “pretty strong” and the job market “balanced and stable,” reinforces a narrative of persistent demand-driven inflation and a higher-for-longer rate profile, even as Musalem stresses going into meetings with an open mind. Musalem’s remarks on AI-related investment, strong demand for capital, and an unsustainable fiscal path suggest structural upward pressure on yields, supporting a view that the Dollar remains underpinned by elevated real rates and anchored inflation expectations.

The FXS Fed Sentiment Index slipped by 0.25 points to 138.33, indicating a modest pullback in perceived hawkishness despite the still-strong tightening bias highlighted in the speech. With the index firmly above the 100 neutral line, the Fed remains in clear hawkish territory even after the small decline, aligning with Musalem’s call for additional policy firming and helping explain why the Dollar and broader rate expectations stay supported in the FXS Speechtracker framework.

Waller flags more Fed hikes but signals flexible timing, supporting Dollar upside

Fed’s Waller delivered a distinctly hawkish message, with an FXS Speechtracker score of 8/10, stronger relative to the historical average of 7.2/10. The insistence that “more hikes [are] needed” while allowing that they need not come at consecutive meetings underscores a bias toward further tightening but with tactical flexibility, reinforcing the view that policy will stay restrictive for longer. Emphasis on persistent inflation drivers, including AI-related investment and ongoing energy shocks, alongside a “solid and stable” labor market and strengthening growth in the second half of 2026, points to a Fed that is more concerned about entrenched price pressures than near-term activity risks.

The FXS Fed Sentiment Index rose by 0.42 points to 138.34, firmly in hawkish territory and consistent with the elevated FXS Speechtracker reading. This move signals that markets should continue to price a higher-for-longer Fed path, a backdrop that typically supports the Dollar against lower-yielding peers.

However, the downside of the USD/CAD pair could be restrained as the commodity-linked Canadian Dollar (CAD) could also face challenges amid lower oil prices following Trump’s remarks. While asserting that record volumes of crude were currently passing through the Strait of Hormuz, President Trump emphasized that the US naval blockade of Iranian ports would remain fully operational.

Analysts at Scotiabank observe that the Canadian Dollar’s latest moves point to a period of consolidation, noting that “recent price action in the CAD is suggestive of consolidation and a reassessment of the near-term path following an astonishing run of weakness from early September.” They see the market using this pause to reassess the trajectory for USDCAD after the sharp depreciation in the Loonie over recent weeks.