Canadian Dollar hangs near one-month low vs bullish USD; rising Oil prices limit losses

The USD/CAD pair trades with a positive bias above mid-1.3700s during the Asian session on Monday, though it remains below a one-month top touched last Friday. A sustained US Dollar (USD) buying interest acts as a tailwind for spot prices while rising Crude Oil prices underpin the commodity-linked Loonie and cap further gains.

In a post on Truth Social, US President Donald Trump warned Iran on Sunday that the “clock is ticking” and that there “won’t be anything left” if action is not taken soon, adding that “time is of the essence.” Adding to this, the Times of Israel reported that Israel and the US are actively advancing military preparations to potentially resume coordinated attacks against Iran. This raises the risk of a further escalation of tensions in the Middle East, which, along with the effective closure of the Strait of Hormuz, lifts Crude Oil prices to a two-week high.

Meanwhile, elevated energy prices continue to fuel inflationary concerns and bolster market expectations for a more hawkish US Federal Reserve (Fed). In fact, the CME Group's FedWatch Tool indicates that traders are currently pricing in over a 50% chance of a Fed rate hike by the end of this year. Apart from this, persistent geopolitical uncertainties lift the safe-haven USD to its highest level since April 7, offsetting the negative factors and supporting the USD/CAD pair. This, in turn, favors bulls and backs the case for further appreciation.

Moving ahead, there isn't any relevant market-moving economic data due for release on Monday, either from the US or Canada. That said, fresh developments surrounding the Middle East crisis might continue to infuse volatility in the financial markets and drive Crude Oil prices. Furthermore, the USD price dynamics should contribute to producing short-term trading opportunities around the USD/CAD pair. The aforementioned fundamental backdrop, however, suggests that the path of least resistance for spot prices remains to the upside.