Canadian Dollar gains stall as positive US-Iran headlines send Oil lower
- USD/CAD struggles for direction as a softer US Dollar and falling Oil prices offset each other.
- WTI’s sharp decline weighs on the Canadian Dollar despite the BoC’s hawkish stance.
- US midterm elections and Friday’s employment reports could drive the pair’s next move.
USD/CAD trades in a choppy range on Monday as a softer US Dollar (USD) and falling Oil prices pull the pair in opposite directions. At the time of writing, the pair trades around 1.3975 after touching 1.3941 on Friday, its lowest level since September 16.
Oil prices fall as traders respond to positive US-Iran diplomatic headlines. Iranian President Masoud Pezeshkian said the Supreme Leader had granted the government certain powers regarding negotiations, according to ISNA.
Earlier, Axios reported that US President Donald Trump favours giving diplomacy with Iran more time. West Texas Intermediate (WTI) trades near $96 a barrel, down more than 5% on the day. Canada is a major crude Oil exporter, leaving the Loonie sensitive to swings in Oil prices.
The US Dollar trades under pressure as falling Oil prices ease inflation concerns, at least for now, and accelerate the decline in US Treasury yields. Yields have retreated from multi-year highs as the AI-led technology-stock sell-off increased demand for government bonds.
Meanwhile, traders also turned cautious ahead of Tuesday’s US midterm elections. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 101.68, off an intraday low of 101.44 but still down 0.28% on the day.
Strategists at Brown Brothers Harriman note that betting markets currently “favor a Democratic sweep,” with platforms such as Polymarket and Kalshi “putting the odds around 70%.” They argue that this configuration “points to a relatively muted initial market reaction if Democrats win both chambers,” as such an outcome is largely anticipated. By contrast, BBH cautions that “a Republican Senate hold would be the bigger surprise and could spark more market volatility.”
However, a hawkish Federal Reserve (Fed) outlook should cushion the Greenback’s downside as policymakers remain committed to bringing inflation back to the 2% target. The Fed kept rates unchanged at 3.75%-4.00% last week following September’s 25-basis-point (bps) increase. Traders are pricing in a 74% chance of a December hike, according to the CME FedWatch Tool.
Data released on Monday showed the US ISM Manufacturing PMI rose to 55.5 in October from 54.5, beating expectations of 54.6. Meanwhile, the Prices Paid Index eased to 75.2 from 77.9, below the forecast of 77.
In Canada, the Bank of Canada (BoC) raised its policy rate by 25 basis points (bps) to 2.50% last week and left the door open to further increases. Policymakers remain concerned that elevated energy costs could spread into broader inflation.
However, Monday’s Canadian manufacturing data pointed to weaker activity. The S&P Global Manufacturing PMI fell to 49.6 in October from 51.5 in September. Traders now await Friday’s employment reports from both countries, which could provide the next major catalyst for USD/CAD.
US midterm elections FAQs
The US midterm elections are the federal elections held halfway through a president's four-year term. Voters choose all 435 members of the House of Representatives, about one-third of the Senate, and, in many states, governors and other state and local officials.
Election Day is Tuesday, November 3, 2026. Federal law sets it as the Tuesday after the first Monday in November. Early voting and mail voting are already under way in many states.
They decide which party controls each chamber of Congress for the last two years of President Donald Trump's term. The majority party sets the legislative agenda, chooses committee leaders and, in the Senate, controls confirmations of judges and senior officials.
No. The president is elected every four years; the next presidential election is in November 2028. Midterms are often seen as a referendum on the sitting president's party, which historically tends to lose House seats.
Most analysts expect a modest, short-lived reaction in the US Dollar rather than a lasting trend. A divided Congress is widely seen as the base case and is partly priced in. Treasury yields may react more noticeably to the results. Outcomes that raise expectations of fiscal stimulus tend to lift yields and the US Dollar, while gridlock that limits new spending can pull both lower. Political friction, such as funding or debt-ceiling standoffs, can also briefly lift the Dollar as a safe haven. Over six to twelve months, growth and Federal Reserve policy matter more than the vote.
US stocks have historically been weak before midterms and strong after them. Since 1950, the S&P 500 has been higher 12 months after every midterm election, 19 out of 19, with an average gain of about 15%. Analysts link the pattern to uncertainty fading once results are known. Past performance does not guarantee future returns, and some strategists note that high valuations in 2026 could test the streak.
Markets have often welcomed a divided government because gridlock makes sweeping changes to taxes, spending and regulation less likely. Under a Republican president, the S&P 500 has historically done well in years following midterms that split control of Congress. The risks are funding deadlines, debt-ceiling fights and congressional investigations, which can add short-term volatility.
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