USD/CAD reverses earlier intraday gains on Tuesday, with the Canadian Dollar (CAD) drawing support from rising Oil prices and offsetting broader US Dollar (USD) strength. At the time of writing, the pair is trading around 1.3800 after hitting an intraday high near 1.3821 earlier in the day.
Ongoing uncertainty surrounding US-Iran negotiations continues to support demand for the US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.16 after briefly slipping below the 99.00 mark on Monday.
Hopes for an immediate agreement faded after American forces carried out “defensive strikes” in southern Iran on Monday, targeting missile facilities and Iranian boats allegedly attempting to deploy naval mines near the Strait of Hormuz.
Although diplomatic efforts between Washington and Tehran remain ongoing, major differences reportedly persist over Iran’s nuclear program, sanctions relief, the release of frozen Iranian assets and the US naval blockade on Iranian ports.
Iran’s Tasnim News Agency, citing a source close to the negotiation team, reported that Tehran wants the United States (US) to release $24 billion in frozen Iranian funds as part of a potential deal. Iran is also seeking at least half of that amount to be released immediately after the agreement is announced.
Meanwhile, The Wall Street Journal reported that the US Navy has resumed guiding commercial ships through the Strait of Hormuz as tensions in the region remain elevated.
Continued supply through the Strait of Hormuz has kept Oil prices elevated, providing underlying support to the commodity-linked Canadian Dollar, given Canada’s status as one of the world’s largest crude exporters. West Texas Intermediate (WTI) crude is up nearly 4% on the day, trading around $93 at the time of writing.
At the same time, rising Oil prices continue to fuel inflation concerns globally, reinforcing expectations that major central banks, including the Federal Reserve (Fed) and the Bank of Canada (BoC), may need to raise interest rates.
BoC Deputy Governor Nicolas Vincent said on Tuesday that “the more the economy faces shocks accompanied by structural change, the less clear-cut our monetary policy decisions will be.”
On the data front, US CB Consumer Confidence came in at 93.1 in May, down from 93.8 in April. Traders now await the US Personal Consumption Expenditures (PCE) inflation report on Thursday, followed by Canada’s Gross Domestic Product (GDP) data on Friday.
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