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- USD/CAD depreciates as market sentiment improves on the US pausing attacks on Iran’s energy sector.
- The US Dollar may rebound as inflation fears curb Fed cut bets, boosting hike expectations.
- The commodity-linked CAD may face challenges amid softer oil prices.
USD/CAD halts its four-day winning streak, trading around 1.3850 during the Asian hours on Friday. The pair weakens as the US Dollar (USD) softens on decreasing risk aversion after recent remarks from US President Donald Trump.
Trump said Washington would pause attacks on Iran’s energy sector for 10 days at Tehran’s request, extending the April 6 deadline to allow more time for negotiations. However, the Wall Street Journal reported that mediators said Iran denied making such a request, underscoring fragile diplomacy and low odds of a near-term ceasefire.
The Greenback may regain its ground on rising inflation concerns, prompting traders to scale back expectations of further Federal Reserve (Fed) rate cuts and increase bets on a potential hike by year-end.
Federal Reserve (Fed) Vice Chair of Supervision Philip Jefferson said higher energy prices should have a modest impact on inflation, though a sustained shock could be more significant. Meanwhile, Fed Governor Michael Barr warned that another price shock could lift inflation expectations, reinforcing the case for the Fed to assess economic conditions before adjusting policy.
The downside in USD/CAD may be limited as the commodity-linked Canadian Dollar (CAD) could struggle amid softer oil prices. Traders remain cautious as the Pentagon considers deploying up to 10,000 additional ground troops to the Middle East to maintain strategic flexibility and deterrence if talks fail.
