The weakened US Dollar mitigates the effects of declining oil prices, resulting in a relatively stable CAD exchange rate. In July, the US Consumer Price Index inflation decreased to 3.4%, thereby diminishing the likelihood of a substantial increase in Federal Reserve interest rates. The Canadian Dollar has experienced a decline as OPEC and the IEA have revised their 2026 global oil demand forecasts downward, attributing this adjustment to the ongoing conflict in the Middle East. USD/CAD remains stable after recording slight gains the previous day, trading near 1.3940 during the Asian session on Thursday. The currency pair exhibits limited fluctuations as a depreciating US Dollar offsets the effects of declining oil prices on the commodity-sensitive Canadian Dollar. The Greenback continues to encounter challenges following the release of July’s Consumer Price Index report, which indicated a moderation in inflation across a broad spectrum of goods and services, thereby substantially dampening expectations for a forceful interest rate increase by the Federal Reserve in September.
Data indicates that the headline CPI experienced a year-over-year increase of 3.4% in July, a slight decline from the 3.5% recorded in the preceding month. In a similar vein, core CPI, which excludes the more volatile food and energy prices, increased by 2.5% year-over-year, down from 2.6% in June. Both figures aligned precisely with market expectations. In the wake of the inflation report, market anticipations regarding forthcoming adjustments in Federal Reserve policy have undergone a recalibration. According to the CME FedWatch tool, interest-rate swaps currently indicate an approximate 40.1% probability of a rate hike in September. Odds for an October increase decreased to approximately 60% from 75% the previous day, with the next possible rate hike not fully accounted for until December. According to TD Securities, July US consumer price inflation came in broadly as expected, with the headline index rising “0.1% m/m (0.074% before rounding; TD: 0.15%, consensus: 0.1%).”
Strategists note that the modest increase was “partly explained by still retreating energy prices (gasoline -3% m/m) and slowing food inflation,” underscoring how softer input costs helped keep overall price pressures contained over the month. Meanwhile, the Canadian Dollar faces pressure as oil prices decline, influenced by downward revisions to global demand forecasts for 2026, a situation exacerbated by disruptions related to the US-Israeli conflict with Iran. In its monthly oil market report released on Wednesday, OPEC has revised its projection for world oil demand growth in 2026 to 580,000 barrels per day. Meanwhile, the International Energy Agency has revised its forecast downward, now predicting a contraction in consumption of 1.6 million bpd this year—a significant decline from its earlier estimate of 1 million bpd.
President Donald Trump asserted that the US possesses “total control” over the strategic waterway, coinciding with intensified rhetoric between Washington and Tehran, as diplomatic negotiations continue to be at a standstill. Concurrently, the Trump administration is intensifying economic pressure on Iran, given that military actions have not succeeded in compelling the regime to comply. Planned measures encompass the expansion of economic sanctions and the establishment of a naval blockade aimed at limiting Iranian oil exports.
