US Dollar retreats against Canadian Dollar as Fed signals rate cuts, Oil caps CAD recovery

• The US Dollar retreats slightly against the Canadian Dollar after reaching 1.4080 earlier this week.
• Dovish remarks from Federal Reserve Chair Jerome Powell boost expectations of rate cuts.
• The Canadian Dollar's rebound remains limited amid persistently low Oil prices.

USD/CAD trims losses on Wednesday, back around 1.4040 at the time of writing, after hitting an intraday low of 1.4026. More broadly, the US Dollar (USD) is consolidating against the Canadian Dollar (CAD) after peaking near 1.4080 on Tuesday. The move reflects broad-based weakness in the Greenback, pressured by dovish comments from Federal Reserve (Fed) Chair Jerome Powell.

Powell reiterated on Tuesday that the central bank is now more concerned about the deterioration in the labor market than inflationary risks, signaling the possibility of further rate cuts in the coming months. He also noted that the Fed is close to ending its balance sheet reduction, the so-called 'Quantitative Tightening' program, as liquidity conditions appear to be tightening.

These remarks reinforced market expectations of additional monetary easing. According to the CME FedWatch tool, traders are pricing in a 97% chance of a 25-basis-point cut at the October meeting, followed by another similar move in December.

Meanwhile, the prolonged US government shutdown continues to weigh on investor confidence and could push the Unemployment Rate higher, as mass federal layoffs are anticipated. The Senate is set to vote again on a short-term spending bill aimed at reopening federal agencies after yet another failed attempt on Tuesday night.

Trade tensions between the United States (US) and China also remain a source of uncertainty. President Donald Trump's announcement of 100% tariffs on all Chinese imports effective November 1 intensified fears of a global trade slowdown. However, US Treasury Secretary Scott Bessent said on Wednesday that Washington does not want to "decouple from China," suggesting a potential compromise in the coming weeks.

On the Canadian side, the Loonie's recovery remains fragile, capped by weak Crude Oil prices. West Texas Intermediate (WTI) Oil trades around $57.80, near a five-month low at $57.33 marked earlier in the day, as concerns over sluggish demand and increasing output continue to weigh on sentiment. Traders now await the American Petroleum Institute (API) weekly Crude Oil inventory report on Wednesday for fresh direction.