CAD

• USD/CAD depreciates as market sentiment improves on the US pausing attacks on Iran’s energy sector.
• The US Dollar may rebound as inflation fears curb Fed cut bets, boosting hike expectations.
• The commodity-linked CAD may face challenges amid softer oil prices.

USD/CAD halts its four-day winning streak, trading around 1.3850 during the Asian hours on Friday. The pair weakens as the US Dollar (USD) softens on decreasing risk aversion after recent remarks from US President Donald Trump.

Trump said Washington would pause attacks on Iran’s energy sector for 10 days at Tehran’s request, extending the April 6 deadline to allow more time for negotiations. However, the Wall Street Journal reported that mediators said Iran denied making such a request, underscoring fragile diplomacy and low odds of a near-term ceasefire.

The Greenback may regain its ground on rising inflation concerns, prompting traders to scale back expectations of further Federal Reserve (Fed) rate cuts and increase bets on a potential hike by year-end.

Federal Reserve (Fed) Vice Chair of Supervision Philip Jefferson said higher energy prices should have a modest impact on inflation, though a sustained shock could be more significant. Meanwhile, Fed Governor Michael Barr warned that another price shock could lift inflation expectations, reinforcing the case for the Fed to assess economic conditions before adjusting policy.

The downside in USD/CAD may be limited as the commodity-linked Canadian Dollar (CAD) could struggle amid softer oil prices. Traders remain cautious as the Pentagon considers deploying up to 10,000 additional ground troops to the Middle East to maintain strategic flexibility and deterrence if talks fail.

• USD/CAD rallies further to near 1.3830 as investors remain on edge amid Middle East conflicts.
• The Fed is unlikely to deliver any dovish monetary policy adjustment this year.
• Higher oil prices are expected to keep the Canadian Dollar broadly on the front foot.

The USD/CAD pair extends its winning streak for the fourth trading day on Thursday and jumps to near 1.3830 during the Asian trading session, the highest level seen in two months.

The Loonie pair trades firmly as the US Dollar (USD) rises amid uncertainty surrounding the war in the Middle East, which involves the United States (US), Israel, and Iran. As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto Wednesday’s gains around 99.65.

The safe-haven demand of the US Dollar remains firm as Iran continues to push back hopes of de-escalation in Middle East conflicts, stating that it is not directly involved in negotiations with the US.

Regarding the month-long ceasefire proposal and 15-point settlement plan, Iran said that the Pakistan-delivered proposal was excessive and demanded sovereignty over the Strait of Hormuz. A senior Iranian official said talks could be held in Pakistan or Turkey if they proceed, Reuters reports.

On the domestic front, traders remain confident that the Federal Reserve (Fed) will not cut interest rates this year, as surging energy prices have de-anchored inflation expectations.

Meanwhile, the Canadian Dollar (CAD) underperforms its major currency peers, except antipodeans, as investors remain on edge amid the Middle East war. However, the broader outlook of the Loonie remains firm amid higher oil prices.

Given that Canada is a net oil exporter, higher oil prices due to an energy supply shock is a favorable situation for the Canadian Dollar.