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- USD/CAD trades with mild losses near 1.3685 in Tuesday’s Asian session.
- Higher crude oil prices underpin the commodity-linked Canadian Dollar.
- The Fed is expected to keep its benchmark interest rate unchanged when it concludes its two-day meeting on Wednesday.
The USD/CAD pair posts modest losses around 1.3685 during the Asian trading hours on Tuesday. The ongoing conflict in the Middle East provides some support to the commodity-linked Canadian Dollar (CAD) against the US Dollar (USD). The US Federal Reserve (Fed) interest rate decision will take center stage later on Wednesday.
Escalating tensions surrounding the US-Israeli conflict with Iran rattled global markets and pushed oil prices above the $100 per barrel mark. Retaliatory Iranian attacks across the region on ships, infrastructure and ports through which oil tankers transit raise fears of oil supply disruption. It is worth noting that Canada is a major oil-exporting country, and higher crude oil prices generally have a positive impact on the CAD.
Nonetheless, disappointing Canadian employment data could drag the Loonie lower and act as a tailwind for the pair. Canada’s economy unexpectedly lost a net 83,900 jobs in February, while the unemployment rate rose to 6.7% during the same period, according to Statistics Canada data released on Friday.
The Iran war is complicating the outlook for the Fed, which is set to meet on Wednesday for its next interest rate decision. Traders see no chance of a Fed rate reduction at its March policy meeting on Wednesday, from the current range of 3.5% to 3.75%.
Fed Chair Jerome Powell’s remarks after the rate decision will also be in the spotlight. The press conference on Wednesday may be Powell’s second to last, as his term as chair is set to end in May. Any hawkish comments from Powell could help limit the Greenback’s losses in the near term.
