Canadian Dollar bounces off late March low vs softer USD; weak Oil prices cap gains
The USD/CAD pair edges lower during the Asian session on Tuesday, eroding part of the previous day's gains to its highest level since late March. Spot prices, however, lack follow-through selling and currently trade just below mid-1.3900s, down less than 0.05% for the day.
Iran and Israel announced on Monday that they had halted attacks against each other, supporting the global risk sentiment and dragging the safe-haven US Dollar (USD) away from a two-month high. This, in turn, is seen as a key factor acting as a headwind for the USD/CAD pair. Meanwhile, easing geopolitical tensions weigh on Crude Oil prices, which undermines the commodity-linked Loonie and helps limit the downside for the currency pair.
The market optimism, however, remains limited amid major US-Iran disagreements over Tehran's nuclear program and the Strait of Hormuz. This, along with hawkish US Federal Reserve (Fed) expectations, might hold back the USD bears from placing aggressive bets. Traders are now pricing in over a 70% chance of a Fed rate hike in 2026, and the bets were reaffirmed by Friday's upbeat US jobs data. This could lend support to the USD and the USD/CAD pair.
The attention this week will be on the closely-watched US Consumer Price Index (CPI) and Producer Price Index (PPI) reports for May, scheduled on Wednesday and Thursday, respectively. The crucial US inflation figures will play a key role in influencing expectations about the Fed's future policy path and drive the USD demand. Moreover, developments surrounding the Middle East crisis and Oil price dynamics should provide some impetus to the USD/CAD pair.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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