Soft US inflation data and Middle East tensions lift crude prices while reducing expectations for a Fed rate increase.
The USD/CAD pair dropped to its lowest level since June 10, extending a two-day decline below the 1.3900 mark. Weak US inflation data, including softer Producer Price Index and Consumer Price Index reports, reinforced expectations that the Federal Reserve will hold interest rates steady. This weighed on the USD, pushing the pair lower.
Earlier, the pair had traded near the top of its weekly range before breaking down. Cooling inflation and last week’s weak Nonfarm Payrolls report further reduced bets on an immediate Fed hike. Meanwhile, rising crude oil prices, driven by Middle East supply concerns, supported the Canadian dollar.
Geopolitical tensions, including US-Iran standoffs and attacks in the Red Sea, heightened supply risks. Treasury Secretary Scott Bessent warned of unprecedented measures against Iran, while Iran-backed groups escalated regional strikes.