USD/CAD extends advance to near 1.3900 amid fears of fresh escalation in Middle East war

The USD/CAD pair extends its winning streak for the sixth trading day on Monday, jumping to near 1.3900 in the Asian trade, the highest level seen in over two months. The Loonie pair trades firmly as fears of a fresh escalation in the Middle East war have further increased the safe-haven demand of the US Dollar (USD).

As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.13% higher to near 100.35. S&P 500 futures trade 0.5% lower in the Asian trade, reflecting a risk-off market mood.

A report from the Wall Street Journal (WSJ), released on Thursday, claiming the United States (US) Pentagon is sending 10,000 additional troops to Iran has prompted fears of widening Middle East conflicts. In response, Iran’s Brigadier General Ebrahim Zolfaqari has issued a stark warning on the Iranian state TV, saying that “US troops will be good food for sharks of the Persian Gulf”. Parliament speaker Mohammad Bagher Ghalibaf also said that Iran would "rain fire" on any US troops attempting to enter Iranian territory, BBC reported.

Investors brace for high volatility this week, as the US economic calendar shows a string of scheduled releases, notably the Nonfarm Payrolls (NFP) data, which would have a significant influence on the Federal Reserve’s (Fed) monetary policy outlook.

“We will remain attentive to risks on both sides of the mandate, and the labour demand has clearly softened,” Fed Chair Jerome Powell said in the press conference post the monetary policy announcement on March 18. Powell added, “Job creation is very low, and a zero-growth equilibrium carries downside risks.”

Theoretically, signs of a weakening job market encourage Fed officials to turn dovish on interest rates; however, they would be unlikely to do so this time, as higher oil prices due to the Middle East war have de-anchored inflation expectations.

Though investors have underpinned the US Dollar against the Canadian Dollar (CAD), the latter trades higher against its other peers, being a net oil exporter amid rising oil prices. WTI oil price has jumped almost 3% above $102.50 in the opening trade.