Canadian Dollar holds losses against US Dollar, weighed by lower Oil prices

• USD/CAD steadies near two-week highs above 1.4100.
• The decline in Oil prices has offset the US Dollar´s weakness amid risk-on markets.
• A hawkish Federal Reserve might give a fresh boost to the US Dollar this week.

The Canadian Dollar (CAD) remains vulnerable, despite the safe-haven US Dollar’s (USD) weakness on Monday, and extends losses for the second consecutive day. The USD/CAD pair trades just below two-week highs at 1.1411, as the negative impact on the CAD from the decline in Oil prices is offsetting the safe-haven USD’s weakness amid the risk-on mood triggered by the truce in Iran.

US and Iran have halted their hostilities, which has triggered a mild relief rally, which is weighing the US Dollar against most of its peers, except the Canadian Dollar, the worst-performing among major currencies on Monday.

Oil prices drop more than $10 from last week's highs

Oil prices have tumbled at market opening times, as markets cling to hopes of a diplomatic outcome that will lead to an agreement to resume free Oil traffic. Brent Crude has dropped more than $10 from last week’s highs, to levels near $85.00, with the US benchmark WTI showing a similar reversal to $82.00 at the time of writing. Oil is Canada’s main export and such declines tend to undermine speculative demand for the Loonie.

The calendar is practically empty on Monday, with all eyes on the US Federal Reserve’s (Fed) Monetary Policy meeting, due on Thursday. Markets are pricing a nearly 33% chance of a rate hike, but the most likely scenario remains a “hold”, with the tone of the bank’s statement and Warsh’s comments at the ensuing press conference likely to determine the US Dollar’s near-term direction.

Against this backdrop, analysts at Brown Brothers Harriman see the risk skewed to the upside for the USD. The bank argues that “a hawkish Fed hold, and a goldilocks-like US macro backdrop can offer USD near-term support,” suggesting that policy and data dynamics still lean in the Greenback’s favor. BBH also highlights the importance of incoming growth signals, pointing out that “today, we get the final update of the Atlanta Fed GDPNow model incorporating the June durable goods orders data,” which will help refine market expectations for the strength of US activity.