Rising crude prices and a softer USD support the Canadian dollar, offsetting trade risks and Fed rate hike expectations.
The USD/CAD pair trades below 1.4100 in Asian hours, pressured by a rally in crude oil prices and a weaker US dollar. Oil surged to its highest level since June 11 amid Middle East tensions, including a blockade of Saudi ports by Iran-backed Houthis, tightening global supply concerns.
The commodity-linked Loonie benefits from the oil rally, while the USD faces headwinds despite elevated US Treasury yields. Markets now price in over a 90% chance of a Fed rate hike by year-end, bolstering the Greenback but capping USD/CAD losses. The Bank of Canada’s expected rate hold through 2026 also limits further downside.
Lack of follow-through selling suggests caution, as the pair’s recovery from a one-month low near 1.4000 may not yet signal deeper losses.