USD/CAD is holding just under the mid-1.4000s after touching a four-week low, with softer US inflation data and firm crude oil prices both weighing on the pair. The Canadian Dollar sits near a monthly peak as markets scale back bets on further Fed tightening.
The US Dollar sits near its weakest point since June 18 against the Canadian Dollar as fading Fed rate-hike expectations and firm oil prices weigh on it. USD/CAD trades just under the mid-1.4000s in Asian trading on Thursday, showing little net change after dropping to a four-week low in the prior session.
Softer US data erodes Fed expectations
Fresh figures released on Wednesday showed the US Producer Price Index declined 0.3% in the latest month, reversing a revised 0.6% gain. Combined with a subdued Consumer Price Index reading on Tuesday, the data has prompted markets to scale back bets on more tightening by the Fed, keeping USD buyers on the back foot.
The softer inflation tone has not fully cleared the picture, however. Concerns about renewed price pressures driven by energy markets persist, given ongoing geopolitical strains and supply risks in the Middle East.
Firm oil underpins the Loonie
Crude oil prices are holding close to a one-month high, supported by escalating tensions between the US and Iran and the closure of the Strait of Hormuz. That resilience in energy prices helps underpin the commodity-linked Canadian Dollar, offsetting the impact of the Bank of Canada’s cautious stance. Together, softer US rate expectations and firm oil reinforce a negative bias for USD/CAD, even as downside in the pair stays constrained.
Middle East standoff caps the downside
The confrontation between the US and Iran has intensified since the start of the week, with US forces carrying out additional airstrikes on Iranian missile and drone facilities and Iran responding with drone and missile attacks on US-linked targets across the region. In a further development, a US aircraft fired on an unladen oil tanker attempting to breach the naval blockade of Iranian ports.
US President Donald Trump has raised the stakes, warning that key Iranian infrastructure could be targeted if conditions worsen. That backdrop keeps crude elevated and leaves the door open to potential interest rate hikes, which restrains traders from adding to bearish positions in USD/CAD.
Source: TradingPedia
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