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- USD/CAD attracts buyers for the fourth straight day, though it lacks follow-through amid mixed cues.
- Sliding oil prices undermine the Loonie, while receding geopolitical risks weigh on the safe-haven USD.
- Prospects for at least one Fed rate hike in 2026 favor USD bulls as traders look to the US macro data.
The USD/CAD pair trades with a positive bias for the fourth straight day and currently hovers around the 1.4070 region, or a nearly one-week high set the previous day. Spot prices, however, lack bullish conviction amid a combination of diverging forces, which warrants caution before positioning for an extension of the recent bounce from sub-1.4000 levels or the lowest since June 17.
Renewed hopes of a potential US-Iran deal to reopen the Strait of Hormuz drag crude oil prices to a nearly four-week low and undermine the commodity-linked Loonie, which, in turn, is seen supporting the USD/CAD pair. Meanwhile, weaker oil prices ease inflation fears and temper US Federal Reserve (Fed) rate hike expectations. Adding to this, receding geopolitical tensions weigh on the safe-haven US Dollar (USD) and cap the upside for the currency pair.
In the latest developments surrounding the Middle East crisis, Axios reported that the US, Iran, and Oman are closing in on an agreement to reopen the Strait of Hormuz. This comes on top of US Treasury Secretary Scott Bessent’s comments that the US could reach a deal with Iran to reopen the strategic waterway by Wednesday and move toward a more normalized position in this conflict. The remarks fueled optimism over a diplomatic resolution to end the US-Iran war.
Traders, however, are still pricing in a greater chance that the US central bank will raise borrowing costs by the end of this year amid signs that the US labor market is beginning to find its footing and looming inflation risks. Adding to this, Kansas City Fed President Jeff Schmid and Philadelphia Fed President Anna Paulson backed the case for higher interest rates to fight inflation. This should limit deeper USD losses and support prospects for further USD/CAD appreciation.
Traders now look to Wednesday’s US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI. Apart from this, the incoming geopolitical headlines and speeches from influential FOMC members would drive the USD demand. This, along with oil price dynamics, should provide some impetus to the USD/CAD pair. The focus, however, remains glued to the crucial monthly jobs report from the US and Canada, due on Friday.
