The Canadian dollar weakened on a day Brent crude rose 3.86% to settle at $103.08, and that contradiction is the most important thing the session revealed. The two central bank decisions due October 28 are now priced off two different engines, and only one of them runs on oil.
Brent snapped a five-session losing streak after Iranian President Masoud Pezeshkian told the United Nations General Assembly that Iran would never surrender. West Texas Intermediate gained 1.81% to $92.16. The loonie, which would normally follow crude higher, instead slipped to 70.95 cents U.S. by midday, and USD/CAD extended a third straight daily gain near 1.409.
The Fed Is Hiking on Demand, the Bank of Canada Is Pricing Crude
The U.S. side of the ledger moved for reasons unrelated to energy. S&P Global flash PMI surveys came in well above forecast, with the composite at 58.4 and the prices measures at their highest since October 2022. Fed Governor Barr then argued that the risks to returning inflation to 2% have grown while the risks to employment have eased.
The U.S. 10-year Treasury yield pushed above 5.05%, its highest since 2007, and rate futures moved to about a 73% probability of a Fed hike on October 28. By the FXStreet account, a speech and a survey have now moved the 10-year further than the September 16 hike itself did.
The Canadian side is built on something else. Markets have treated the Bank of Canada decision on the same date as roughly a coin flip, with the policy rate at 2.25%. RBC senior economist Claire Fan has attributed that repricing chiefly to oil, and the summary of deliberations from the September 2 decision recorded governing council concern that the longer crude stays high, the greater the risk to inflation. The Government of Canada 10-year yield sat near 3.90% Wednesday morning, roughly 115 basis points below its U.S. counterpart.
Crude and the loonie moved in opposite directions through the session, and the assets most exposed to U.S. rates, gold and silver, fell hardest while the TSX energy group captured only a fraction of the oil rally.
Crude figures are front-month settlements, gold and silver are New York spot at 12:53 p.m. ET, and TSX subgroups and the Canadian dollar are midday readings. The Composite figure is a late-session reading, not the official close.
Why a Hormuz Deal Now Cuts Twice Against the Loonie
The first U.S.-Iran shuttle talks in months took place at the United Nations this week, and neither side has yet spelled out a change in position. Daniela Hathorn, a senior market analyst quoted by The National, estimated that a credible agreement to reopen Hormuz, combined with recovering Saudi exports, could push Brent toward the low $90s.
Lower crude weakens Canadian terms of trade directly. It also removes the main support for a Bank of Canada hike, because the October 28 hike case in Ottawa rests on oil. The Fed case rests on U.S. demand and a hot PMI, so it survives a peace deal intact.
The rate gap between the two countries would widen at the same moment the commodity support drops out. One diplomatic headline delivers two separate blows to the Canadian dollar. The failure scenario is the partial offset: renewed disruption lifts crude and revives Bank of Canada hike odds, narrowing the gap.
For Canadian portfolios carrying unhedged U.S. dollar exposure, that exposure now behaves as a hedge against peace rather than against escalation.
The TSX Resource Hedge Split in Two
The S&P/TSX Composite was down 1.23% near 35,889 late in the session, on course for its steepest one-day decline in about two weeks. Energy and mining together account for more than 36% of the index by market capitalization, according to LSEG data, and that weight is usually described as a single commodity hedge. Wednesday showed it is two opposing hedges.
By midday the TSX gold subgroup was down 3.8% and materials down 3.5%, while energy had added just 0.7% against a near 4% rally in Brent. Spot gold fell 1.76% to $4,280 and silver 3.96% to $64.27 by early afternoon, both pressed by a U.S. dollar index at its highest since July 30 and by rising hike odds. Gold is now down about 7.3% over the past month.
The Composite gave back more than half of its post-hike rebound in a single session, and the late-session level sits roughly 1,070 points below the August 25 closing high.
The September 16 low coincided with the first Fed rate hike since 2023; the August 25 close of 36,957.6 is the highest of the period. The September 23 value is a late-session reading from Investing.com.
When the Fed is the driver, the gold half of the TSX resource weight becomes the transmission belt for U.S. rate risk, and the energy half cannot fully offset it even on a strong oil day. Canadian retail sales and the Trump-Xi summit both land Thursday, but the variable that set the TSX direction on Wednesday was the U.S. 10-year, not Brent.