Canadian Dollar hangs near one-week low as weak oil prices counter USD downtick

The Canadian Dollar (CAD) is trading close to a one-week low as oil prices decline, countering a slight dip in the US Dollar (USD). As of now, the USD/CAD pair is hovering around 1.4070, near a week-high that was reached earlier. Market sentiment is uncertain, necessitating caution before deciding to capitalize on the recent bounce from sub-1.4000 levels or the lowest point since June 17.

Optimistic speculation regarding a US-Iran deal that could reopen the Strait of Hormuz has led to a significant drop in crude oil prices, negatively impacting the commodity-dependent Loonie. In turn, this provides support for the USD/CAD pair. Simultaneously, lower oil prices help ease inflation concerns and temper expectations of US Federal Reserve (Fed) rate hikes.

Meanwhile, reduced geopolitical tensions dampen demand for the safe-haven USD, limiting upward movement for the currency pair. Recent developments suggest that the US, Iran, and Oman are nearing an agreement to reopen the Strait of Hormuz, as reported by Axios. Furthermore, comments from US Treasury Secretary Scott Bessent indicate a possibility of reaching a deal with Iran by Wednesday, potentially normalizing the conflict.

While traders remain cautious, they anticipate a higher likelihood of a Fed rate hike by the end of the year due to signs of strengthening US labor market and looming inflation risks. Positive signals from the US labor market and inflation data, such as the upcoming ADP report on private-sector employment and ISM Services PMI, could further bolster the USD/CAD pair.

However, the focus remains on the crucial US and Canadian economic indicators, scheduled for release on Friday.