The USD/CAD currency pair extended its rebound from a two-month low near 1.3900, gaining further positive traction for the second consecutive day and rising above 1.3950, the top end of the weekly range. This movement was driven by a broadly stronger US Dollar, as the US Dollar Index (DXY) continued its weekly ascent for the fourth straight day, reaching a two-week high. The rally in the Greenback was attributed to renewed inflation concerns stemming from volatile crude oil prices, which have revived expectations for a hawkish Federal Reserve stance. According to the CME Group's FedWatch Tool, traders are pricing in nearly an 80% probability that the US central bank will raise borrowing costs by the end of this year [1].
Geopolitical tensions also contributed to the market dynamics, with the US-Iran standoff over the Strait of Hormuz maintaining a geopolitical risk premium and driving safe-haven flows into the US Dollar. President Donald Trump asserted that the US has total control over the strategic waterway, while Iran has threatened to keep the Strait closed until its demands are met. Additionally, Iran-backed Houthi forces in Yemen escalated attacks on vessels in the Red Sea and Bab el-Mandeb Strait, further supporting crude oil prices [1].
Despite higher oil prices, which typically support the commodity-linked Canadian Dollar, the Loonie struggled to gain ground against the USD. The article notes that higher oil prices could offer some support to the Canadian Dollar and advises caution before making aggressive bullish bets on the USD/CAD pair. Market participants are now focused on upcoming US economic data releases, including the Producer Price Index (PPI) and Weekly Initial Jobless Claims, as well as comments from influential FOMC members. Developments in the Middle East crisis are also expected to inject volatility into oil prices and influence the USD/CAD pair [1].
From a technical perspective, the USD/CAD pair remains resilient below the 100-day Simple Moving Average (SMA) at 1.3920. However, negative momentum indicators such as the MACD and a Relative Strength Index (RSI) around 38 suggest that the bullish momentum is not yet fully established. A daily close below the 100-day SMA would reinforce a bearish outlook and expose the pair to further corrective risks, while holding above this level could pave the way for additional gains if momentum improves [1].
CONCLUSION
The USD/CAD pair's recent gains are underpinned by a stronger US Dollar, driven by oil-induced inflation concerns and heightened Fed rate hike expectations. Geopolitical tensions and upcoming US economic data are likely to keep the pair volatile. Technical indicators suggest caution, as the bullish trend is not yet firmly established.