USD/CAD recovered on Tuesday after falling to an intraday low of 1.3760, trading near 1.3790 at the time of writing. Despite the rebound, the pair remained around 0.18% lower on the day, reflecting continued strength in the Canadian Dollar (CAD).
The Loonie has benefited from elevated Oil prices, given Canada’s position as a major crude exporter. However, its gains remain constrained by renewed risk aversion as geopolitical tensions in the Middle East intensify. Investors are becoming increasingly cautious as hopes for a negotiated settlement to the conflict weaken.
Iranian officials warned on Monday that further attacks could prompt Tehran to target energy infrastructure across the Gulf, including US Oil and Gas interests. Meanwhile, Qatar has urged international efforts to reopen the Strait of Hormuz, a crucial passage for global energy shipments. Any prolonged disruption could create significant consequences for global energy markets and reinforce demand for traditional safe-haven assets such as the US Dollar.
The ongoing US-Iran conflict, which has extended for six months, continues to underpin Oil prices. Higher crude prices generally benefit the Canadian Dollar because energy exports play a significant role in Canada’s economy, limiting the upside potential in USD/CAD.
Currency markets remain relatively subdued as traders look ahead to Friday’s US Consumer Price Index (CPI) release. The inflation data will be closely watched for indications about the Federal Reserve’s future monetary-policy direction. A stronger-than-expected CPI reading could support the US Dollar by reducing expectations for policy easing, while softer inflation could weigh on the greenback.
Trade Idea
Sell USD/CAD near 1.3800, targeting 1.3740, with a stop above 1.3840, as firm Oil prices continue supporting the Canadian Dollar.