The Canadian Dollar (CAD) has surged to its strongest level against the US Dollar (USD) since the second week of June, with the USD/CAD rate holding just above 1.3900. This marks the fourth consecutive lower session for the pair and the seventh in ten sessions, effectively erasing two months of US Dollar gains against the Loonie in just ten trading days [1]. The last time this rate was observed was 43 sessions ago, coinciding with the week the Strait of Hormuz was shut. The reversal in the USD's advance has occurred despite an escalation, rather than a resolution, of the conflict in the region [1]. The shift is attributed to rising oil prices, with Brent crude trading above $86 per barrel, which benefits Canada as a net exporter and strengthens its currency [1]. The Bank of Canada's July Monetary Policy Report had assumed the Loonie would average around 71 cents US (near 1.4085), but the spot rate is now 71.8 cents, the widest gap since the forecast was finalized on July 10 [1]. The report also noted that Brent holding between $80 and $85 would add 0.1 to 0.3 percentage points to inflation, and with Brent above $86, this could further impact inflation projections [1]. Despite a technical recession in Canada, 6.5% unemployment, and a 50% tariff on most Canadian goods entering the US since July 20, the CAD's rally has been driven by external factors, notably Friday's US payrolls contraction and Monday's crude oil bid [1]. Futures markets have repriced the probability of a September Federal Reserve rate hike to 49.9% from 44.1% on Friday, yet the US Dollar has weakened, indicating the rate gap is not the primary driver [1].
Similarly, the British Pound (GBP) has advanced during the North American session, rising 0.2% to trade at 1.3520 against the US Dollar after bouncing off daily lows of 1.3483 [2]. The move comes as negotiations between Oman and Iran have failed to ease market concerns, leading to a 4.5% jump in West Texas Intermediate (WTI) crude to $80.69 per barrel [2]. The US Dollar Index (DXY) is up 0.1% at 99.73, but the GBP/USD pair remains buoyant [2]. Market participants are closely watching upcoming economic data, including UK BRC Like-For-Like Retail Sales and GDP figures, as well as US inflation and jobless claims data, especially after a disappointing US Nonfarm Payrolls report last week that showed a loss of 23,000 jobs and downward revisions for May and June [2]. Money markets now expect 22 basis points of Federal Reserve tightening by the end of 2026, up from 17 basis points last Friday [2]. For the Bank of England, energy price volatility due to the US-Iran conflict has kept rate hike expectations in flux, with traders currently pricing in a 25-basis-point increase by year-end [2].
Technical analysis for GBP/USD shows a constructive bullish bias, with the pair trading above key support levels and the Relative Strength Index (RSI) at 62, indicating continued upward momentum without overbought conditions [2].
CONCLUSION
Both the Canadian Dollar and British Pound have strengthened against the US Dollar amid escalating Middle East tensions and rising oil prices, with external factors outweighing domestic economic concerns. Market participants are now focused on upcoming inflation and employment data in the US and UK, as well as central bank policy expectations, which remain sensitive to geopolitical developments and energy prices.