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USD/CAD falls as USD slips and oil risk supports the loonie
The Canadian dollar soft consumer inflation data reinforce expectations that the Bank of Canada will hold rates unchanged through the rest of 2026.
The USD/CAD pair retreated from a one-week high, slipping by about 25 to 30 pips and reaching a fresh daily low in the first half of the European session, as the US dollar edged lower and snapped a three-day winning streak, according to FXStreet.
FXStreet links the weaker USD tone to hopes for a diplomatic solution to end the US-Iran conflict, though it notes that Washington said any talks must be paired with a shift in Iran's behavior regarding commercial shipping through the Strait of Hormuz. The outlet also points to continued restrictions in the waterway and a Houthi maritime blockade against Saudi Arabia, which it says keeps crude prices supported and provides some backing for the Canadian dollar.
The move, however, is tempered by expectations for Federal Reserve rate hikes by year-end amid concerns about energy-driven inflation, limiting how far the USD can fall. At the same time, FXStreet says Canada's softer consumer inflation data reaffirm bets that the Bank of Canada will keep rates unchanged through the remainder of 2026.
FXStreet adds that new US tariffs on Canadian products could weigh on the Canadian dollar, while it expects traders may wait for follow-through before positioning for a potential resumption of the pair's slide from its highest level since April 2025. With no major US or Canadian economic releases scheduled, the outlet says incoming geopolitical headlines and oil price dynamics are likely to drive short-term USD demand.
FXStreet also notes that, for the day shown in its table, the US dollar was the strongest against the Japanese yen.
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