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Canadian dollar strengthens as oil prices rise, USD/CAD stays near 1.4150

Higher crude prices support USD/CAD's move lower, but the outlook is clouded by renewed concerns that energy inflation could push the Fed toward tighter policy.

Reported · Written up by our desk · Major Pairs

USD/CAD is extending its losing streak, trading around 1.4150 during Asian hours Tuesday, as the Canadian dollar gets support from firmer oil prices, FXStreet reported.

The pairing is being pulled by the commodity link between Canada and crude, with oil rising on supply anxieties tied to heightened Middle East geopolitical risks, including a US naval blockade aimed at Iranian vessels and customers using the Strait of Hormuz. The same developments are also keeping safe-haven demand elevated for the US dollar, which can limit USD/CAD downside.

FXStreet also pointed to growing uncertainty around interest rates, noting that higher oil can both bolster CAD and raise fears of energy driven inflation that could lead the Federal Reserve to tighten policy further.

Ahead of two major US catalysts, traders are set to watch the US June CPI release, where analysts expect headline inflation to fall 0.1% month-on-month while core is seen rising 0.3%, and they will also parse Fed Chair Kevin Warshs congressional testimony for signs the Fed will validate a more hawkish market stance. FXStreet added that CME FedWatch now shows a 51% probability of a September rate hike versus a 23% chance rates will stay on hold.

Latest closeWTI crude $78.04 ▲9.3%

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