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- USD/CAD struggles to build on its modest gains amid a combination of factors.
- The door for further diplomacy remains open, capping the USD and the major.
- Rallying Oil prices underpin the Loonie and act as a headwind for spot prices.
The USD/CAD pair retreats a few pips from the Asian session high and currently trades around the 1.3860-1.3855 region, up around 0.15% for the day. Meanwhile, the mixed fundamental backdrop warrants caution before positioning for an extension of a modest recovery from sub-1.3800 levels, or over a two-week low set on Friday.
The US Dollar (USD) struggles to capitalize on the weekly bullish gap opening amid reports that regional countries are racing to bring the US and Iran back to the negotiating table within days. This keeps the door open for further diplomacy and caps the safe-haven Greenback. Moreover, an intraday rally in Crude Oil prices underpins the commodity-linked Loonie and contributes to capping the USD/CAD pair.
West Texas Intermediate (WTI) – the benchmark US Crude Oil price – rallies back to the $105/barrel mark in reaction to failed US-Iran peace talks over the weekend. In fact, US Vice President JD Vance said that he placed a final and best offer on the table, but Iran declined to accept the terms, leading to a stalemate. Meanwhile, Iranian state media said that excessive demands sank the possibility of an agreement.
Furthermore, US President Donald Trump said that the US Navy would start blockading the Strait of Hormuz, jeopardizing a fragile two-week ceasefire. Adding to this, continued Israeli strikes in Lebanon raise the risk of a renewed escalation of tensions in the Middle East and support oil prices. However, hawkish US Federal Reserve (Fed) bets should limit deeper losses for the buck and the USD/CAD pair.
Data released on Friday showed that inflation in the US surged by the most in nearly four years during March. Apart from this, the war-driven surge in elevated energy prices led investors to abandon bets on Fed rate cuts and shift focus to potential interest rate hikes this year. The outlook triggers a fresh leg up in US Treasury bond yields, which favors the USD bulls and acts as a tailwind for the USD/CAD pair.
