USD/CAD tests fresh six-week lows sub-1.3630 amid wide US Dollar weakness
The US Dollar (USD) is showing the weakest performance among the G8 majors on Monday, and depreciates against the Canadian Dollar (CAD) for the second consecutive day. The pair trades at 1.3630 at the time of writing, to test fresh six-week lows after a knee-jerk reaction at 1.3713 on Friday.
A moderate optimism about a negotiated end of the Middle East conflict is keeping the safe-haven US Dollar on the defensive on Monday. The second round of US-Iran peace talks has been cancelled, but a report from Axios affirming that Tehran has sent a new peace proposal to the US is feeding a mild risk appetite alive at the week's opening.
Axios, citing a US official and two sources familiar with the matter, reported that Iran has offered the US the possibility of ending the conflict and reopening the Strait of Hormuz, and leaving nuclear negotiations to a later stage.
The key waterway, which transports about a fifth of global Oil production, meanwhile, remains shut for almost two months, keeping Crude prices supported near the key $ 100-per-barrel level. The barrel of the US benchmark West Texas Intermediate (WTI) has gained about $6 over the last two days and is trading at $94.70 at the time of writing, providing support to the commodity-sensitive CAD.
Central banks return to the focus
Apart from that, central banks will take the spotlight this week. The Bank of Canada (BoC) is expected to leave its monetary policy unchanged for the fourth consecutive time on Wednesday. The BoC is likely to note the higher inflationary pressures but will request more time to decide its monetary policy amid the uncertainty in the Middle East.
The US Federal Reserve (Fed) is likely to follow suit a few hours later. The market is fully pricing interest rates to remain on hold throughout 2026, according to the CME Fed Watch Tool, which also shows that there is a 66% chance that the central bank keeps its monetary policy steady in December this year.
Wednesday’s Fed meeting is likely to be also the last of Jerome Powell as the bank’s chairman, as his term ends in May, and former Governor Kevin Warsh has been appointed to replace him. What is not clear is whether Powell will keep his chair at the Board of Governors or will definitely leave the bank, as US President Donald Trump demands. The outcome of the Powell-Trump saga and the independence of the Fed are likely to remain an issue during the days following the meeting.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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