USD/CAD trims its decline as Oil drops under $90 amid positive sentiment over US-Iran negotiations

USD/CAD Recovers as Oil Prices Slide Amid Renewed US-Iran Dialogue

The USD/CAD currency pair pared some of its earlier declines on Tuesday, buoyed by falling Oil prices. Optimism surrounding renewed discussions between the US and Iran put pressure on the Canadian Dollar, which is closely tied to commodities, allowing USD/CAD to rebound from its session lows. However, a generally positive risk environment continues to weigh on the US Dollar overall.

As of the latest update, USD/CAD is trading near 1.3761, after touching a low of 1.3731—the weakest level since March 24. The US Dollar Index (DXY), which measures the Greenback against six major peers, is hovering around 98.00, marking its lowest point since early March.

Market sentiment has improved as investors hope that the current two-week ceasefire could be prolonged or even become permanent. US President Donald Trump indicated to The New York Post that negotiations with Iran might take place in Pakistan within the next two days. This follows his previous comments that credible intermediaries from Iran had reached out to Washington, despite the recent US naval blockade on Iranian ports that began on Monday.

Nevertheless, significant uncertainty persists, especially due to ongoing disputes over Iran’s nuclear ambitions, which continue to complicate the negotiation process. Tensions remain high in the Strait of Hormuz, preventing a sharper drop in Oil prices. Still, the possibility of renewed talks has helped calm immediate fears of further escalation.

Currently, WTI Crude Oil is trading at approximately $89 per barrel, extending its decline for a second straight day and falling by over 4%. Should diplomatic progress continue, Oil prices may drop further, putting additional pressure on the Canadian Dollar.

Weaker Oil prices could also reduce the urgency for the Federal Reserve and the Bank of Canada to tighten monetary policy, even as inflation concerns persist. On Tuesday, Chicago Fed President Austan Goolsbee noted that inflation expectations remain stable, but cautioned that the likelihood of rate cuts in 2026 may decrease if inflation fails to moderate.

On the economic data front, the latest US Producer Price Index (PPI) figures for March were softer than anticipated. The headline PPI rose by 0.5% month-over-month, missing the 1.2% forecast and matching the previous reading, which was revised down from 0.7%. Year-over-year, PPI increased by 4.0%, falling short of the 4.6% estimate and easing from the prior 3.4%.