On Friday (October 16) during Asian trading hours, the US dollar fluctuated slightly lower against the Canadian dollar, currently trading around 1.4180, close to the more than two-week low reached in the previous trading day. The US dollar continued its sharp decline from its highest level since April 2025 this week, with falling US Treasury yields putting pressure on the dollar.

The US dollar weakened against the Canadian dollar for the second consecutive day.

The US dollar faced selling pressure against the Canadian dollar for the second consecutive day on Friday, currently trading around 1.4180, near a more than two-week low hit in the previous session. The spot price appears poised for a weekly decline, with a series of negative factors supporting further depreciation. The dollar extended its sharp pullback from its highest level since April 2025 this week, marking its third consecutive day of decline, and failed to gain any respite from the neutral comments of Federal Reserve Chairman Warsh, who made little change to monetary policy expectations. Nevertheless, declining US Treasury yields kept dollar bulls on the defensive. Meanwhile, oil prices held steady at a three-week high, and Bank of Canada Governor Tiff Macklemkid's hawkish stance supported the commodity-linked Canadian dollar and put pressure on the US dollar against the Canadian dollar.

Bank of Canada: Macklem's tone turns hawkish, increasing the likelihood of a rate hike.

In fact, Macklem stated at the IMF and World Bank Group annual meetings that rising energy prices are more persistent and harder to ignore. This suggests the Bank of Canada might consider raising its key policy rate rather than cutting it. However, US-Canada trade tensions may dampen traders' appetite for aggressive bullish bets on the Canadian dollar. Furthermore, growing market acceptance of another Fed rate hike in December, and escalating conflict in the Middle East, could support the US dollar and the USD/CAD exchange rate.

Regarding the US dollar: Strong CPI and PPI data fuel expectations of a December rate hike.

This week's US CPI and PPI reports were both strong, pointing to increasing price pressures beyond energy products and supporting the prospect of further tightening by the Federal Reserve. Geopolitically, the Iranian-backed Houthi rebels launched a deadly missile attack on the presidential palace in Aden, the seat of the Saudi-backed, internationally recognized government in Yemen. Furthermore, the standoff between the US and Iran over the Strait of Hormuz supported bargain hunting for the US dollar and warrants caution from short sellers of the USD/CAD pair.

Summarize

The US dollar weakened for the second consecutive day against the Canadian dollar on Friday, nearing a more than two-week low and poised for a weekly decline. The dollar extended its sharp pullback from its highest level since April 2025 this week, pressured by falling US Treasury yields, while Warsh's neutral comments failed to provide support. Meanwhile, oil prices held steady at a three-week high, and Bank of Canada Governor Macklemkid shifted to a hawkish stance, hinting at a possible rate hike rather than a cut, both supporting the Canadian dollar. However, US-Canada trade tensions, growing market acceptance of a December Fed rate hike, and escalating Middle East conflict could limit the Canadian dollar's gains and provide support for the US dollar; USD/CAD bears should remain cautious. (USD/CAD daily chart, source: EasyForex) At 14:19 Beijing time, USD/CAD was trading at 1.4179/80.