USD/CAD extends six-day advance as geopolitical tensions bolster US Dollar

• USD/CAD rises for a sixth consecutive day, supported by renewed safe-haven demand.
• Tensions linked to the war between the United States and Iran strengthen the US Dollar.
• The Canadian Dollar remains pressured by steady Oil prices and monetary policy expectations.

USD/CAD trades around 1.3910 on Monday at the time of writing, up 0.12% on the day and extending its winning streak to six consecutive days. The pair is supported by a stronger US Dollar (USD) amid rising geopolitical tensions in the Middle East.

Demand for the Greenback increases as investors seek safe-haven assets due to uncertainty surrounding the war between the United States (US) and Iran. In an interview with the Financial Times, US President Donald Trump said that Washington could “take the Oil in Iran”, including potentially seizing Kharg Island, the country’s main export hub. At the same time, he indicated that indirect talks with Tehran were progressing and that an agreement could be reached relatively quickly.

Regional tensions also intensified after Iran-backed Houthi rebels in Yemen launched their first strikes against Israel over the weekend. This escalation broadens the conflict and raises concerns about potential disruptions to key shipping routes, particularly in the Red Sea, as well as to Saudi energy infrastructure, increasing risks to global energy supply.

Meanwhile, the Canadian Dollar (CAD) remains under pressure, weighed down by relatively stable Oil prices. West Texas Intermediate (WTI) US Oil edges lower and trades around $98.80 per barrel at the time of writing, limiting the support typically provided to the CAD by the energy sector, as Canada is the largest Crude Oil exporter to the United States.

HSBC analysts argue that the recent strength of the Canadian Dollar may moderate in the coming weeks despite elevated energy prices. According to the bank, relative monetary policy dynamics could become a more decisive driver for the Loonie. HSBC economists expect the Bank of Canada (BoC) to keep interest rates on hold through 2026 and 2027, while acknowledging that hawkish risks could emerge if energy disruptions significantly lift inflation expectations.

Investors are also watching remarks from Federal Reserve (Fed) Chair Jerome Powell later on Monday. Key US labor market indicators scheduled for release this week, particularly the Nonfarm Payrolls (NFP) report and the Institute for Supply Management (ISM) Purchasing Managers Index (PMI), could influence the monetary policy expectations and the trajectory of the US Dollar.