USD/CAD kicks off the new week on a positive note, though it lacks strong follow-through.
Escalating geopolitical tensions benefits the safe-haven USD and lends support to the major.
Bullish Crude Oil prices underpin the Loonie and caps spot prices ahead of the global PMIs.
The USD/CAD pair opens with a modest bullish gap at the start of a new week and touches a fresh monthly high, levels beyond mid-1.3700s during the Asian session. Spot prices, however, lack bullish conviction amid a combination of diverging forces, warranting caution before positioning for an extension of last week’s goodish recovery from the year-to-date low.
The global risk sentiment took a hit in reaction to the US attack on Iran’s nuclear facilities on Sunday, which raises the risk of a further escalation of conflict in the Middle East. This, in turn, drives some safe-haven flows towards the US Dollar (USD) and turns out to be a key factor acting as a tailwind for the USD/CAD pair. However, the growing acceptance that the Federal Reserve (Fed) will resume its rate-cutting cycle in September keeps a lid on any further gains for the USD.
Meanwhile, concerns that a broader Middle East conflict would disrupt supplies lift Crude Oil prices to over a five-month high and underpins the commodity-linked Loonie. Moreover, hopes that the US and Canada could have a trade deal soon, along with diminishing odds for more rate cuts by the Bank of Canada (BoC) amid a reacceleration in domestic inflation, supports the Canadian Dollar (CAD). This might further contribute to capping the upside for the USD/CAD pair.
Traders now look forward to the release of the global flash PMIs, which, along with geopolitical developments, will drive the risk sentiment and influence the Greenback. Apart from this, Oil price dynamics will be looked upon to grab short-term trading opportunities around the USD/CAD pair. The market focus will then shift to the latest Canadian consumer inflation figures and Fed Chair Jerome Powell's two-day congressional testimony starting on Tuesday.
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