USD/CAD hovers around 1.3900 due to market caution ahead of US presidential election

• USD/CAD remains steady as traders adopt caution due to increased uncertainty surrounding the US election results.
• Trump indicated that he may challenge any unfavorable election result, as he did in 2020.
• The commodity-linked CAD may struggle due to cooling WTI price, despite a more than 3% increase on Monday.

The USD/CAD pair maintains its position around 1.3900 during Tuesday's Asian session, as traders exercise caution amid heightened uncertainty over the US presidential election outcome. However, a lower-than-expected US Nonfarm Payrolls report for October, showing an increase of only 12,000 compared to the previous 223,000, has put downward pressure on the US Dollar (USD).

The opinion polls show that Trump and Harris are virtually even. The final winner may not be known for days after Tuesday's vote. Former President Donald Trump and Vice President Kamala Harris both predicted victory as they campaigned across Pennsylvania on Monday in the final, frantic day of an exceptionally close US presidential election. Trump has already indicated he may challenge any unfavorable result, as he did in 2020.

Traders await the US Federal Reserve's (Fed) policy decision, which is scheduled for Thursday. Markets expect a modest 25 basis point rate cut this week. The CME FedWatch Tool shows a 99.5% probability of a quarter-point rate cut by the Fed in November.

The downside of the USD/CAD pair could be restrained, as the commodity-linked Canadian Dollar (CAD) could face challenges from a cooling WTI price, despite a more than 3% increase on Monday after the OPEC+ coalition announced a delay in its December production hike. West Texas Intermediate (WTI) Oil price trades around $71.20 per barrel at the time of writing.

The Canadian Dollar may weaken as the Bank of Canada (BoC) is anticipated to implement additional rate cuts at its final monetary policy meeting of the year in December. BoC Governor Tiff Macklem has indicated the possibility of another 50 basis points (bps) rate reduction.

Last week, Governor Macklem told to Senate Committee "We've demonstrated we're prepared to do a 50-basis-points cut if we think that's appropriate. And if we think it's appropriate to do it again, we'll do it again."