The Canadian Dollar gains support as higher oil prices are propelled by escalating US-Iran tensions concerning the Strait of Hormuz. Washington intends to exert maximum economic pressure on Iran to prevent a large-scale military conflict and to compel negotiations. The US Dollar may find underlying support as Treasury yields resume their upward trend despite bond buyback plans. USD/CAD continues to decline for the third consecutive day, currently trading near 1.3770 during the Asian session on Friday. The currency pair experiences a decline as the commodity-linked Canadian Dollar gains traction from increasing crude oil prices. Oil prices have surged due to escalating tensions between the United States and Iran, which remain locked in a standoff over control of the crucial Strait of Hormuz.
In response, Washington is taking steps to impose significant restrictions on Iran’s economy in an initiative that President Donald Trump has termed a “economic D-day,” with formal details anticipated on Monday. The US proposed measures aim to sever Tehran’s access to global commercial and financial networks, targeting banks, businesses, shipping registries, cash transfers, and smuggling operations, in an effort to compel the regime into negotiations concerning its nuclear program, regional conflicts, and the transit through Hormuz. According to a report, US Treasury Secretary Scott Bessent indicated that the administration’s efforts to dismantle Iran’s economic lifelines are expected to reduce the necessity for substantial military intervention.
Bessent stated that applying maximum economic pressure makes a large-scale kinetic escalation far less probable. Strategists note that the Canadian Dollar is benefiting from a combination of “broad dollar weakness and signs of progress on US/Canada trade” that are “combining to drive the CAD higher.” They point out that intraday gains remain relatively contained, but emphasize that the currency’s “0.3% rise is second only to the NZD among the major currencies,” underscoring the Loonie’s firm tone in the current session. Despite these downward pressures on USD/CAD, the pair’s losses could be constrained by the inherent strength of the US Dollar. Despite the US Treasury’s efforts to manage high yields via a long-end bond buyback initiative, US Treasury yields have continued their ascent, establishing a robust support level for the Greenback.
This coincides with Bessent’s remarks that the US budget deficit is anticipated to have peaked under President Trump, that expedited debt buybacks could exceed the $4 billion budgeted per issue, and that a forthcoming fiscal plan is being developed. Strategists highlight that the USD is “weakening further, sliding to its lowest since midJune,” with broader market price action mixed across asset classes. They note that “stocks are mixed, crude oil prices are stronger, and major bond markets are a little weaker,” while “Treasuries are underperforming and the curve is steepening again,” underscoring the pressure on the Dollar as US rates move higher at the long end.
