Canadian Dollar holds ground as US-Iran peace talks resume
- USD/CAD slips as the US Dollar weakens on news that Washington and Tehran paused attacks ahead of Doha peace talks.
- Traders remain highly sensitive to Middle East headlines, assessing regional stability and its impact on global risk appetite.
- The commodity-linked Canadian Dollar’s upside could be restrained as falling oil prices drag down the energy-dependent currency.
USD/CAD remains in the negative territory for the third consecutive day, trading around 1.4190 during the Asian hours on Monday. The pair depreciates as the US Dollar (USD) inches lower following reports that Washington and Tehran have agreed to halt attacks against each other before peace talks resume in Doha this week.
However, market participants remain highly sensitive to evolving headlines out of the Middle East as they assess the stability of the region and its broader impact on global risk sentiment. This diplomatic opening follows several days of retaliatory strikes triggered on Thursday when an Iranian projectile hit a cargo vessel, leading both Washington and Tehran to accuse one another of violating a previously established June 17 interim ceasefire. Official delegations from both countries are scheduled to meet in Qatar on Tuesday to negotiate an end to the conflict.
The Greenback’s downside may be protected by lingering hawkish expectations from the Federal Reserve. According to the CME FedWatch Tool, traders are currently pricing in a 59.7% probability of a rate hike as soon as September 2026. This week's key labor market reports—culminating in Thursday’s Nonfarm Payrolls (NFP) data—are expected to provide critical clues regarding the Fed's interest rate trajectory. Forecasters anticipate June job growth to come in at 114,000, with the unemployment rate expected to remain flat at 4.3%.
Additionally, the commodity-linked Canadian Dollar (CAD) could face challenges due to lower oil prices. As Canada is one of the largest crude exporters, lower oil prices put downward pressure on the country’s foreign inflows.
West Texas Intermediate (WTI) oil price trades around $69.80 at the time of writing. Crude oil prices fell after Reuters’ report on Sunday that the US and Iran have agreed to temporarily pause recent hostilities in the Gulf and renew discussions regarding their ongoing dispute over the Strait of Hormuz.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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