- USD/CAD is seen consolidating the previous day’s recovery gains amid mixed cues.
- Recovering oil prices underpins the Loonie and acts as a headwind for spot prices.
- The US-Iran uncertainty benefits the safe-haven USD and lends support to the pair.
The USD/CAD pair struggles to capitalize on the previous day’s modest recovery gains and oscillates in a narrow band during the Asian session on Tuesday. Spot prices currently trade just below the 1.4050 level, nearly unchanged for the day, amid mixed fundamental cues.
The uncertainty over US-Iran talks helps crude oil prices gain some positive traction, which underpins the commodity-linked Loonie and acts as a headwind for the USD/CAD pair. The safe-haven US Dollar (USD), on the other hand, benefits from fading optimism over a potential US-Iran peace deal, lending some support to the currency pair. In the latest developments, Iran said on Monday there were no talks underway with the US and also no plans for any meetings.
This contradicted US President Donald Trump, who has cited resumption of negotiations as justification for calling off attacks over the weekend. Moreover, unconfirmed reports of drone strikes on US assets in Kuwait prompt traders to again price in the geopolitical risk premium. This, in turn, assists the safe-haven Greenback to preserve the previous day’s solid recovery gains from its June 17 low and holds back USD/CAD bears from placing fresh bets.
Meanwhile, the US-Iran standoff over the Strait of Hormuz, along with Houthi rebels’ naval blockade against Saudi Arabia, fuels concerns regarding global energy supplies and triggers a modest uptick in crude oil prices. This could revive inflation fears and keep bets for at least one interest rate hike by the US Federal Reserve (Fed) firmly on the table, which favors USD bulls and warrants caution before positioning for any meaningful decline for the USD/CAD pair.
Rabobank’s Benjamin Picton characterises the recurring pattern around the Strait of Hormuz as a kind of “Groundhog Day” for markets, warning that “later in the week strikes typically resume, oil prices rally, equities sell, and bond yields rise.” He adds that while “there is every chance of that happening this week,” for now the market is left with the impression of “‘strikes for strikes’,” as participants weigh the risk of renewed escalation against the current lull.
