Canadian Dollar gains ground amid rising oil prices

• Canadian Dollar receives support amid higher oil prices driven by US-Iran tensions over the Strait of Hormuz.
• Washington plans maximum economic pressure on Iran to avoid large-scale military conflict and force negotiations.
• The US Dollar may find underlying support as Treasury yields resume their upward trend despite bond buyback plans.

USD/CAD extends its losses for the third successive day, trading around 1.3770 during the Asian hours on Friday. The currency pair loses ground as the commodity-linked Canadian Dollar (CAD) receives support from rising crude oil prices.

Oil prices have surged due to escalating tensions between the United States (US) and Iran, which remain locked in a standoff over control of the crucial Strait of Hormuz. In response, Washington is moving to severely restrict Iran’s economy in an initiative President Donald Trump labeled an “economic D-day,” with formal details expected on Monday.

The US proposed measures aim to sever Tehran’s access to global commercial and financial networks, targeting banks, businesses, shipping registries, cash transfers, and smuggling operations, in an effort to force the regime into negotiations regarding its nuclear program, regional conflicts, and the passage through Hormuz.

According to a CNBC report, US Treasury Secretary Scott Bessent noted that the administration’s campaign to dismantle Iran’s economic lifelines will likely eliminate the need for significant military intervention. Bessent stated that applying maximum economic pressure makes a large-scale kinetic escalation far less probable.

CAD outperforms as broad Dollar softness and US-Canada trade progress support

Strategists at Scotiabank note that the Canadian Dollar is benefiting from a combination of “broad dollar weakness and signs of progress on US/Canada trade” that are “combining to drive the CAD higher.” They point out that intraday gains remain relatively contained, but emphasize that the currency’s “0.3% rise is second only to the NZD among the major currencies,” underscoring the Loonie’s firm tone in the current session.

Despite these downward pressures on USD/CAD, the pair’s losses could be limited by underlying strength in the US Dollar (USD). Although the US Treasury attempted to control elevated yields through a long-end bond buyback program, US Treasury yields have resumed their upward movement, providing a solid floor for the Greenback. This comes alongside Bessent’s comments indicating that accelerated debt buybacks could surpass the planned $4 billion per issue and that an upcoming fiscal plan is in development, with the US budget deficit expected to have peaked under President Trump.

Dollar slides to mid-June lows as Treasuries underperform

Strategists at Scotiabank highlight that the USD is “weakening further, sliding to its lowest since midJune,” with broader market price action mixed across asset classes. They note that “stocks are mixed, crude oil prices are stronger, and major bond markets are a little weaker,” while “Treasuries are underperforming and the curve is steepening again,” underscoring the pressure on the Dollar as US rates move higher at the long end.

Register a Revolut Business Account