Higher WTI crude prices near $86.00 per barrel bolster the CAD, pressuring the USD/CAD pair amid escalating Middle East tensions.
The USD/CAD pair retreated to around 1.4100 in early European trading Wednesday, reversing two days of gains as rising oil prices supported the commodity-linked Canadian dollar. West Texas Intermediate (WTI) crude climbed for a second consecutive session, trading near $86.00 per barrel, driven by supply risks across key export routes beyond the Middle East.
Geopolitical tensions escalated as U.S. and Iranian officials exchanged threats, with Iran vowing to target U.S. assets if its nuclear facilities are attacked. Despite risk aversion, the U.S. dollar struggled to gain traction, though expectations of a Federal Reserve rate hike in September remained elevated, with markets pricing in over 69% odds of a 25-basis-point increase.
The Fed is widely anticipated to hold rates steady in July, but policymakers have signaled potential tightening beyond that. Fed Chair Warsh has emphasized persistent inflation concerns, reinforcing expectations for a hawkish stance.