Canadian Dollar Edges Lower as U.S. Launches New Wave of Strikes Against Iran
The USD/CAD pair moved higher near 1.4165 during Monday’s Asian trading session, ending a four-day losing streak. The U.S. dollar gained ground against the Canadian dollar as investors reacted to continued tensions between the United States and Iran.
Market attention is also turning to the upcoming U.S. June Consumer Price Index inflation report, which is expected to be a key driver for the currency pair later on Tuesday.
U.S. Dollar Gains on Middle East Tensions
The greenback strengthened as geopolitical risks in the Middle East remained elevated.
The U.S. military launched multiple strikes across Iran, saying the attacks were aimed at weakening Tehran’s ability to threaten commercial shipping in the Strait of Hormuz.
Iran’s Islamic Revolutionary Guard Corps responded with drone and missile attacks targeting U.S.-linked allies and military facilities across the region, including Kuwait, Qatar, Bahrain and Jordan.
Strait of Hormuz Concerns Boost Safe-Haven Demand
Over the weekend, Iran said the Strait of Hormuz would be closed “until further notice.”
However, U.S. Central Command said the waterway remained open and that U.S. forces were prepared to protect freedom of navigation.
Because the Strait of Hormuz is a major route for global energy shipments, any threat to shipping through the area can increase demand for safe-haven currencies such as the U.S. dollar.
Canadian Dollar Finds Support From Jobs Data
While geopolitical concerns supported the U.S. dollar, stronger Canadian labour market data helped limit losses for the Canadian dollar.
Statistics Canada reported that Canada added 18,200 jobs in June, beating market expectations and continuing the momentum seen in May.
The May report had shown a much stronger increase of 87,800 jobs.
Canada’s Unemployment Rate Falls
Canada’s unemployment rate dropped to 6.5% in June from 6.6% in May.
That was better than the market expectation for the rate to remain at 6.6%.
The stronger-than-expected employment figures may provide some support for the loonie, especially if investors believe the Canadian economy is holding up better than expected.
Bank of Canada Expected to Hold Rates
The Bank of Canada is widely expected to keep its overnight rate unchanged at 2.25% at its July policy meeting.
A Reuters poll showed economists expect the central bank to hold rates steady as inflation pressures remain mostly contained and the economy continues a gradual recovery.
If the Bank of Canada signals patience on rates, the Canadian dollar may remain influenced by external risks such as oil prices, U.S. inflation data and global geopolitical tensions.
U.S. CPI Report in Focus
The upcoming U.S. June CPI report will be closely watched by traders.
A hotter-than-expected inflation reading could strengthen the U.S. dollar by supporting expectations that interest rates may stay elevated for longer.
On the other hand, softer inflation data could weaken the greenback and give the Canadian dollar room to recover.
USD/CAD Outlook
In the near term, USD/CAD may remain sensitive to three major factors: Middle East tensions, U.S. inflation data and Bank of Canada policy expectations.
If tensions around the Strait of Hormuz escalate further, safe-haven demand may continue to support the U.S. dollar.
However, Canada’s stronger jobs data and a steady BoC outlook could help the Canadian dollar resist deeper losses.
USD/CAD rebounded near 1.4165 as renewed U.S.-Iran tensions boosted demand for the U.S. dollar. Concerns over the Strait of Hormuz remain a key market driver, while Canada’s stronger-than-expected June jobs report offers some support to the loonie.
Traders will now watch the U.S. CPI report and the Bank of Canada’s policy decision for the next major direction in the currency pair.
