USD/CAD Edges Higher as Iran Conflict Supports Greenback

Traders' Opinions

Summary:

USD/CAD edged higher as geopolitical tensions in the Middle East boosted safe-haven demand for the US Dollar, overshadowing support for the Canadian Dollar from rising oil prices. Markets are also increasingly pricing in the possibility of another Federal Reserve rate hike later this year.

BUY USDCAD

Close Time

CLOSED

1.38100

Entry Price

1.38900

1.37400

1.38335 +0.00218 +0.16%

12.2

Pips

Profit

1.37400

1.38222

Exit Price

1.38100

Entry Price

1.38900

The Canadian Dollar struggled to capitalize on rising crude oil prices on Tuesday, with USD/CAD pushing modestly higher during Asian trading hours as investors continued to favor the safety of the US Dollar amid escalating geopolitical tensions in the Middle East and growing expectations of a more hawkish Federal Reserve.

The pair traded near the 1.3810 region after recovering from minor losses recorded in the previous session, as renewed risk aversion across broader financial markets helped underpin demand for the Greenback. While crude oil prices rebounded sharply following fresh military developments involving the United States and Iran, the commodity-linked Canadian Dollar failed to gain meaningful traction, highlighting the extent to which safe-haven demand currently dominates currency flows.

West Texas Intermediate crude climbed back above the $91.50-per-barrel mark after four consecutive days of declines, supported by renewed fears surrounding global energy supply disruptions. The latest leg higher came after US forces reportedly conducted what officials described as “self-defense strikes” in southern Iran on Monday, targeting missile launch sites and Iranian naval assets allegedly attempting to deploy mines near key shipping routes.

According to statements from the US Central Command, the operation was aimed at protecting American personnel and ensuring maritime security in the region. Although US military officials emphasized that Washington remains committed to restraint during the ongoing ceasefire period, the situation has once again reignited concerns about stability in the Strait of Hormuz, a strategic energy corridor responsible for transporting a significant portion of the world’s crude oil supply.

Despite the increase in oil prices, the Canadian Dollar remained under pressure as traders focused more heavily on deteriorating geopolitical sentiment and the resulting flight into traditional safe-haven assets. In my view, this reflects a broader shift in market psychology where geopolitical uncertainty is overpowering the usual positive correlation between oil prices and the Loonie.

Investor caution was somewhat tempered after US President Donald Trump stated that negotiations aimed at securing a broader peace agreement with Iran and reopening the Strait of Hormuz were “proceeding nicely.” However, market participants remain skeptical about the durability of any diplomatic breakthrough given the repeated back-and-forth rhetoric from both Washington and Tehran in recent weeks.

At the same time, expectations surrounding US monetary policy continue to offer strong support to the US Dollar. Markets are increasingly convinced that the Federal Reserve may be forced to maintain a restrictive policy stance for longer as inflation risks remain elevated amid rising energy costs and resilient US economic data.

According to the CME FedWatch Tool, traders are now pricing in nearly a 41% probability of an additional 25-basis-point rate hike by the end of the year. That marks a notable shift in expectations compared with earlier projections that centered primarily around potential rate cuts. The repricing of the Fed outlook has pushed Treasury yields higher and reinforced the Greenback’s yield advantage against major peers, including the Canadian Dollar.

Attention now turns to the upcoming US Personal Consumption Expenditures (PCE) inflation report, widely regarded as the Federal Reserve’s preferred inflation gauge. Investors are likely to scrutinize the data closely for further confirmation on whether inflationary pressures remain persistent enough to justify tighter monetary policy heading into year-end.

Technical Analysis

From a technical perspective, USD/CAD remains firmly positioned within a well-defined bullish ascending channel on the 2-hour chart, with price action continuing to respect the broader upward structure established since early May. The pair is currently consolidating near the mid-to-upper boundary of the channel around the 1.3800–1.3810 region after a strong impulsive rally from the lower trendline support. This consolidation appears constructive rather than corrective, suggesting that buyers remain in control despite the recent pause in momentum.

Price is currently holding above the former breakout support near 1.3790, a level that has transitioned into an important short-term demand zone. The market has repeatedly defended this area, indicating that dip buyers are still active. Additionally, the pair continues to trade comfortably above the lower ascending trendline support near 1.3760–1.3740, preserving the integrity of the bullish structure. A sustained breakdown beneath this support region would represent the first meaningful sign of weakening momentum and could trigger a broader corrective decline toward the 1.3700 handle, followed by the deeper support region around 1.3660–1.3640 where previous consolidation and breakout activity occurred. A decisive move below that area would invalidate the current bullish channel and expose the pair to a larger retracement toward the 1.3600 psychological level.

On the upside, bulls remain focused on a confirmed breakout above the recent swing highs near 1.3820–1.3830. A sustained push beyond this resistance zone would likely accelerate bullish momentum and open the door toward the upper boundary of the ascending channel near 1.3870–1.3890. Beyond that, the psychologically important 1.3900 level becomes the next major upside target and could attract additional momentum-driven buying interest.

The chart structure also suggests the potential formation of a bullish continuation pattern following the recent pullback from highs. Price retraced modestly before stabilizing above support, indicating that the market may be preparing for another impulsive leg higher. The projected path on the chart favors a rebound from current levels toward fresh highs, reinforcing the broader bullish outlook as long as support remains intact.

Momentum conditions appear supportive of continued upside development rather than signaling exhaustion. Although short-term momentum has cooled following the recent rally, price action remains orderly and constructive within the channel structure. The absence of aggressive bearish rejection near resistance further supports the case for continued sideways-to-higher movement before the next breakout attempt.

TRADE RECOMMENDATION

BUY USD/CAD

ENTRY PRICE: 1.3810

STOP LOSS: 1.3740

TAKE PROFIT: 1.3890

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USD/CAD Edges Higher as Iran Conflict Supports Greenback

Technical Analysis

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