Canadian Dollar weakens as Oil prices slide on US-Iran deal hopes

The Canadian Dollar (CAD) experienced a decline on Tuesday as falling Oil prices impacted the commodity-linked currency following comments from US Treasury Secretary Scott Bessent regarding potential US-Iran talks. The USD/CAD pair traded around 1.4068, marking a weekly high. Bessent stated, "We are in talks with the Iranians," adding a chance of a deal to open the strait of Hormuz.

Despite the US Dollar weakening slightly, the drop in Oil prices overshadowed the move, leaving the CAD pressured. Canada's sensitivity to Oil prices is due to the nation's significant Oil exports. West Texas Intermediate (WTI) traded at $75.50, down nearly 4% on the day, its lowest since July 13. Lower Oil prices ease energy-driven inflation pressures, reducing the need for restrictive monetary policy or interest rate hikes by central banks.

The Federal Reserve (Fed) is expected to maintain a mildly restrictive monetary policy, with the probability of a September rate hike falling to 58.9% from 67.2% a day earlier, according to the CME FedWatch Tool. Chicago Fed President Anna Paulson noted that inflation is too high, and the Fed aims to bring it down. Lower Oil prices also put pressure on the Bank of Canada (BoC), which had warned that persistently high energy costs could necessitate consecutive rate hikes.

Traders are now awaiting labor market data from the United States and Canada, including the US JOLTS Job Openings on Tuesday, ADP Employment Change on Wednesday, US Nonfarm Payrolls and Canadian employment figures on Friday.