USD/CAD edges higher as US-Iran tensions underpin the US Dollar
USD/CAD edges higher on Monday as rising tensions in the Strait of Hormuz, amid the ongoing US–Iran standoff, support the US Dollar (USD). At the time of writing, the pair is trading around 1.3617, up nearly 0.22% on the day.
US-Iran tensions show no signs of de-escalation. Iran’s Fars news agency reported that two missiles struck a US naval vessel near the island of Jask after it allegedly ignored warnings from the Islamic Revolutionary Guard Corps (IRGC) to halt. However, a US official denied that any American vessel had been hit, according to Axios.
The development follows US President Donald Trump’s announcement of a naval initiative dubbed “Project Freedom,” aimed at escorting stranded commercial vessels through the Strait of Hormuz. In response, Tehran warned it would attack US forces if they attempted to approach or enter the waterway.
Over the weekend, Washington rejected Iran’s revised 14-point proposal and presented a counteroffer, now under review in Tehran, with nuclear disagreements still unresolved. US President Donald Trump said in an interview with Israel’s Kan News, “It’s not acceptable to me. I’ve studied it, I’ve studied everything — it’s not acceptable.”
Persistent geopolitical tensions are underpinning the US Dollar (USD) after its recent weakness. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 98.28, extending Friday’s rebound from near two-week lows.
For the Canadian Dollar (CAD), ongoing supply disruptions in the Strait of Hormuz and the resulting surge in Oil prices are supporting the commodity-linked Loonie against its major peers, given Canada’s role as a major crude exporter. Still, the Loonie lags the US Dollar, which continues to draw support from its status as a global reserve currency.
Meanwhile, rising Oil-driven inflation risks are also fueling hawkish expectations for both the Federal Reserve (Fed) and the Bank of Canada (BoC). Higher energy costs have already pushed inflation higher in recent data. Attention now turns to the upcoming employment reports from both the US and Canada, due on Friday, which could provide further direction for monetary policy expectations and the USD/CAD pair.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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