Canadian Dollar finds support from rising Oil prices, softer Greenback

USD/CAD edges lower on Wednesday as a mildly softer US Dollar (USD) and rising Oil prices help the Canadian Dollar (CAD) snap a two-day losing streak. At the time of writing, the pair trades around 1.4085, down 0.16% on the day.

Higher Oil prices typically support the commodity-linked Loonie, given Canada’s position as a major crude exporter. West Texas Intermediate (WTI) trades around $86.00, near its highest level since June 11.

Oil prices are rising as fighting in the Middle East disrupts shipping through the Strait of Hormuz, while threats from Yemen’s Ansar Allah raise fresh supply concerns in the Red Sea.

US President Donald Trump issued a fresh warning to Iran on Wednesday, threatening strikes on the country’s infrastructure if Tehran targets vessels in the Strait of Hormuz.

The US Dollar trades slightly lower on the day but remains supported by geopolitical tensions and hawkish Fed expectations, as higher Oil prices add to inflation risks. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 101.12, down 0.08% on the day.

Traders now await the July 28-29 Federal Open Market Committee (FOMC) meeting. According to the CME FedWatch Tool, the probability of a July rate hike has climbed to 28% from 10% a week ago, while the odds of a September hike stand at 69%.

On the Canadian side, the Bank of Canada (BoC) left its policy rate unchanged at 2.25% at its July meeting and reiterated that it was prepared to adjust interest rates if needed.

According to TD Securities, “recent headlines of new US Section 338 tariffs on Canada pose a headwind for CAD,” with “trade uncertainty to keep USDCAD above 1.40 near term.” Even so, the bank expects the Loonie to regain some ground over time, stating that it “see[s] scope for it move toward our 1.39 year-end forecast,” and ultimately anticipates that “we see USDCAD eventually retracing lower to 1.39 by year-end 2026.”