USD/CAD remains subdued as robust crude oil prices bolster the Canadian Dollar. Geopolitical uncertainty drives demand for the safe-haven US Dollar, thereby limiting the losses of the USD/CAD pair. Fading expectations regarding Federal Reserve rate hikes may lead to a depreciation of the Greenback. USD/CAD continues to decline for the fourth consecutive day, hovering near 1.3870 during the European trading session on Tuesday. The currency pair experiences depreciation as the commodity-linked Canadian Dollar receives support from strengthening crude oil prices. West Texas Intermediate crude has stabilised around $84.10 per barrel following two consecutive sessions of gains. Oil prices may continue to rise as the likelihood of a US-Iran agreement diminishes, particularly in light of President Donald Trump’s assertion that he is not inclined to prolong the interim peace accord. The memorandum of understanding signed in June, which established a 60-day window for longer-term peace negotiations, officially expired on Monday.
Strategists note that Brent crude has “rallied to $91.85 a barrel, its highest level in more than three weeks, as the US-Iran Strait of Hormuz standoff drags on.” Elias Haddad and his team argue that “we continue to see crude oil prices driving the war narrative, with price swings likely to dictate the pace of escalation and de-escalation.” In their view, these dynamics “should keep Brent within a broad $70 to $100 range.” Despite this pressure, the downside for USD/CAD may remain limited as the US Dollar draws support from safe-haven demand stemming from the geopolitical uncertainty between the US and Iran. However, the Greenback continues to encounter challenges as expectations for Federal Reserve rate hikes gradually diminish.
An unexpected decline in July Nonfarm Payrolls, coupled with subdued consumer inflation data, has weakened the case for imminent monetary tightening. Reflecting this changing sentiment, CME FedWatch Tool data shows that the likelihood of a Fed rate hike at the forthcoming meeting has decreased to 36.6%, a decline from 48.4% just a week earlier. Fed’s Goolsbee adopts a cautiously optimistic stance regarding inflation, noting “a little bit better” readings and characterising recent tariff and oil-induced price pressures as primarily one-off shocks that may recede as inflation trends back toward 2%. The FXS Speechtracker score of 4.6/10 indicates a notably softer impact compared to the historical average of 6.8/10, implying that the remarks were less market-moving and more incremental in shaping expectations.
Overall, the message indicates a gradual disinflation in conjunction with a “steady” US economy, underscoring a cautious yet attentive policy approach. The FXS Fed Sentiment Index decreased by 2.36 points to 134.61, reflecting a slight retreat in perceived hawkishness in the wake of Goolsbee’s remarks. Despite the decline, the index remains significantly above the neutral 100 threshold, indicating that Fed communication, as reflected by the FXS Fed Sentiment Index and FXS Speechtracker, persists in a hawkish stance, even as inflation data exhibit signs of tentative improvement.
