The Canadian Dollar (CAD) has shown resilience against both the Euro (EUR) and the US Dollar (USD) amid heightened geopolitical tensions and central bank policy decisions. The EUR/CAD pair extended its losses for the third consecutive day, trading around 1.5920 during Asian hours on Friday, as risk aversion weighed on the Euro due to ongoing concerns in the Middle East, particularly the continued US naval blockade of Iranian ports and uncertainty over the reopening of the Strait of Hormuz. These developments have supported higher oil prices, with West Texas Intermediate (WTI) trading around $102.40 per barrel, contributing to CAD strength as oil is a major Canadian export [1].
The European Central Bank (ECB) kept its deposit rate unchanged at 2% during its April meeting, despite rising Eurozone inflation and increased risks stemming from the Iran conflict. The ECB noted that while the overall outlook remains broadly unchanged, there are now greater upside risks to inflation and downside risks to growth [1]. Meanwhile, the Bank of Canada (BoC) warned on Wednesday that interest rates could rise further, especially with energy prices remaining elevated, which has also lent support to the Canadian Dollar [2].
In the USD/CAD pair, the Loonie outperformed as the US Dollar Index (DXY) hovered near 98.20, close to its 10-day low of 98.00. The USD/CAD traded near Thursday's low at around 1.3580, maintaining a bearish near-term bias as it remained capped below the 20-day Exponential Moving Average (EMA) at 1.3698 and a resistance band starting at the 61.8% Fibonacci retracement near 1.3667. Technical analysis suggests that a further decline could see the pair test the March 9 low of 1.3525 and the swing low at 1.3482 if it fails to hold the 78.6% Fibonacci retracement at 1.3585 [2].
The Federal Reserve left interest rates unchanged in the range of 3.50%-3.75% at its latest meeting, with four members dissenting, three of whom called for a move away from the easing bias. The next major trigger for the US Dollar is expected to be commentaries from Federal Reserve officials, as the blackout period has ended following the recent policy announcement [2].
CONCLUSION
The Canadian Dollar has gained support from higher oil prices and hawkish signals from the Bank of Canada, outperforming both the Euro and the US Dollar. Central bank decisions and geopolitical tensions continue to drive volatility, with technical indicators pointing to further downside risk for USD/CAD. Market participants are closely watching upcoming Federal Reserve commentary for additional direction.