USD/CAD recovers modestly on Tuesday after touching multi-week lows, as declining Oil prices weigh on the commodity-linked Canadian Dollar despite ongoing pressure on the US Dollar.

The pair is trading near 1.3760 after falling to around 1.3730 earlier in the session, marking its lowest level since late March. Meanwhile, the US Dollar remains broadly subdued, with the US Dollar Index hovering near recent lows as improving global sentiment reduces demand for safe-haven assets.

Market optimism has been fueled by renewed hopes of diplomatic progress between the United States and Iran. US President Donald Trump indicated that discussions could take place within days in Pakistan, raising expectations that the current ceasefire might be extended or even formalized. These developments have helped ease immediate fears of escalation, though uncertainty persists due to unresolved issues such as Iran’s nuclear program.

A key driver of USD/CAD’s rebound is the pullback in Oil prices. Crude has declined for a second straight day, with WTI trading near $89 per barrel, down over 4% during this period. As Canada is a major oil exporter, lower energy prices tend to weaken the Canadian Dollar, offsetting the impact of a softer US Dollar and supporting the currency pair.

However, tensions surrounding the Strait of Hormuz continue to limit further downside in Oil, as supply risks remain present. Any significant progress in negotiations could push prices lower, adding further pressure on the CAD.

On the monetary policy front, softer US inflation data has also influenced sentiment. The latest Producer Price Index (PPI) figures came in below expectations, suggesting some easing in price pressures. Still, officials from the Federal Reserve remain cautious, noting that inflation risks persist and could delay potential rate cuts.

Looking ahead, USD/CAD is likely to remain sensitive to geopolitical headlines and movements in Oil prices, which continue to act as the primary drivers in the current environment.

Trade Idea:
Sell USD/CAD near 1.3800 targeting 1.3650. Continued USD softness and improving sentiment favor downside, but falling Oil prices could limit CAD strength and slow declines.