Geopolitical tensions in the Strait of Hormuz and hawkish Fed signals lift the US Dollar, pressuring the Canadian Dollar.
USD/CAD climbed to 1.4020 in Asian trading Friday, extending gains for a second day as safe-haven demand bolstered the US Dollar. Escalating tensions in the Strait of Hormuz, a critical shipping route, have fueled market uncertainty, with Iran’s parliament reviewing a draft agreement that could restrict US and Israeli vessels and impose cargo penalties on hostile nations.
The pair’s advance follows a rebound in US Treasury yields and rising oil prices, reigniting speculation the Federal Reserve may raise interest rates next month. Fed officials, including Chair Warsh, have signaled readiness to hike if inflation accelerates, while Musalem’s hawkish tone—scoring 7.4/10 on the FXS Speechtracker—highlighted upside inflation risks despite stable expectations.
Markets remain skeptical about the Strait’s reopening, with the proposed restrictions likely to prolong disruptions. The Fed’s focus on core inflation amid energy volatility adds to tightening expectations, weighing on risk-sensitive currencies like the Canadian Dollar.