Find out why the USD/CAD pair is pulling back from its recent high and how escalating tensions in the Middle East are impacting Oil prices and the currency market.
- USD/CAD loses ground as Oil prices rise due to escalated tensions in the Middle East.
- A rocket strike in the Israeli-occupied Golan Heights has heightened concerns about crude Oil supply.
- The US Dollar depreciates as the Fed may deliver three rate cuts in 2024.
USD/CAD pulls back from an eight-month high of 1.3849 recorded in the previous session, trading around 1.3820 during the Asian hours on Monday. The rise in Oil prices supports the Canadian Dollar (CAD) and puts downward pressure on the USD/CAD pair.
West Texas Intermediate (WTI) crude Oil trades around $76.80 per barrel at the time of writing. This upside is driven by concerns over a potential escalation in the Middle East following a rocket strike in the Israeli-occupied Golan Heights, which Israel and the United States (US) have attributed to the Lebanese armed group Hezbollah, according to Reuters.
Israel’s security cabinet authorized Prime Minister Benjamin Netanyahu’s government on Sunday to determine the “manner and timing” of a response to the rocket strike, which killed 12 teenagers and children on Saturday.
Additionally, the US Dollar (USD) faces challenges due to the cooling inflation and easing labor market conditions in the United States (US), which have fueled expectations of three rate cuts this year by the Federal Reserve (Fed), starting in September.
These expectations were bolstered by the release of the US Personal Consumption Expenditures (PCE) Price Index on Friday, which indicated a modest rise in inflation for June and provided further signs of easing price pressures.
The US PCE Price Index rose by 2.5% year-over-year in June, down slightly from 2.6% in May, meeting market expectations. On a monthly basis, the PCE Price Index increased by 0.1% after being unchanged in May.
The US Core PCE inflation, which excludes volatile food and energy prices, also climbed to 2.6% in June, consistent with May’s increase and above the forecast of 2.5%. The core PCE Price Index rose by 0.2% month-over-month in June, compared to 0.1% in May.
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Discover the key factors driving the Canadian Dollar (CAD) and how they can impact the currency market, including interest rates, Oil prices, inflation, and more.
In summary, escalating tensions in the Middle East have led to a rise in Oil prices, supporting the Canadian Dollar (CAD) and putting downward pressure on the USD/CAD pair. Meanwhile, the US Dollar (USD) faces challenges from cooling inflation and expectations of three rate cuts by the Federal Reserve (Fed). Understanding these factors is crucial for investors and traders looking to navigate the currency market effectively.