USD/CAD rises amid US-China trade optimism, weaker Oil prices

• Risk sentiment improves on signs of easing US-China trade tensions.
• The US Dollar stabilizes ahead of delayed inflation data.
• Persistently low Oil prices continue to weigh on the Canadian Dollar.

USD/CAD trades slightly higher on Monday, up 0.10% for the day to around 1.4030 at the time of writing. The pair gains support as the US Dollar (USD) steadies, benefiting from a gradual recovery in risk appetite across global markets due to the US and China easing tensions, while the Canadian Dollar (CAD) remains pressured by falling Oil prices.

Investors welcome signs of de-escalation in the US-China trade conflict. US President Donald Trump acknowledged on Friday that imposing 100% tariffs on Chinese imports would not be sustainable, indicating that a reduction is possible if Beijing "does things for us too." 

US Treasury Secretary Scott Bessent confirmed that he will meet Chinese Vice Premier He Lifeng this week, ahead of a potential summit between Trump and Chinese President Xi Jinping in South Korea later this month. These developments have fueled hopes that the two largest economies will reach a trade deal, improving overall market sentiment.

Domestically, concerns over the health of US regional banks have subsided after strong quarterly earnings from major lenders, which have further supported risk appetite. However, the US Dollar remains subdued ahead of the release of the September Consumer Price Index (CPI), delayed to Friday due to the US government shutdown. 

The report will be crucial in shaping expectations for the Federal Reserve's (Fed) monetary policy outlook. According to the CME FedWatch tool, markets have fully priced in a 25-basis-point interest rate cut at the October meeting.

In Canada, investors will monitor Monday's publication of the Industrial Product Price (IPP) index and the Raw Material Price index for September, though market attention remains focused on Tuesday's Consumer Price Index (CPI) data.

The figures will be key for shaping expectations ahead of the Bank of Canada's (BoC) monetary policy decision on October 29, following its rate cut to 2.5% in September. Softer inflation could strengthen the case for further monetary easing, while a higher-than-expected CPI reading would limit the central bank's room for maneuver.

Meanwhile, the Canadian Dollar continues to suffer from lower Oil prices. West Texas Intermediate (WTI) US Oil falls 0.80% on Monday at the time of writing, trading below $57, near Friday's five-month low of $56.15. Persistent concerns about global oversupply continue to pressure Oil markets and, consequently, the commodity-linked Loonie.

In this context, the relative performance gap between the two currencies still favors USD/CAD, as expectations for Fed rate cuts are largely priced in, while weak energy prices constrain the Canadian Dollar's potential rebound.