Canadian Dollar dips as Oil slump, dovish BoC outlook underpin USD strength

On Tuesday, the USD/CAD currency pair saw a 0.27% increase, trading around 1.4070. This gain was driven by the weakness in the Canadian Dollar (CAD), which was impacted by falling oil prices. Even though improving risk appetite positively affected the Loonie, the drop in oil prices outweighed this positive effect. As a major oil producer, Canada's economy is sensitive to energy price fluctuations, causing the CAD to lag behind.

The decline in US West Texas Intermediate (WTI) oil prices by 0.46% to approximately $91.20 also affected the Canadian Dollar. Owing to this, the USD/CAD pair remained on the stronger side. US President Donald Trump, while addressing the UN General Assembly, expressed his firm stance against Iran and urged other countries to maintain pressure on Tehran. He further mentioned that Iran would never obtain a nuclear weapon. Despite this, Trump anticipates that the US and Iran will reach an agreement following the US elections.

On the policy front, the National Bank of Canada suggested that the Bank of Canada (BoC) should maintain a patient approach. The bank stated that while they had tightened their expected timeline, the BoC would likely remain inactive in October due to economic slack. Meanwhile, in the United States, the US Dollar (USD) continued to benefit from a relatively supportive monetary policy.

Boston Federal Reserve (Fed) President Susan Collins backed the recent interest rate hike and advocated for a slightly more restrictive monetary policy to sustainably bring inflation back to the Fed's 2% target.

Overall, the USD strength was supported by a relatively hawkish monetary policy outlook in the United States and easing geopolitical concerns.