Canadian Dollar advances as easing risk aversion lifts US Dollar

USD/CAD depreciates after posting minor gains in the previous trading day, hovering around 1.4080 during the Asian hours on Monday. The pair loses ground as the US Dollar (USD) falls sharply on easing geopolitical tensions following a weekend pause in military hostilities between the US and Iran.

The brief US-Iran pause came after 13 days of escalating conflict. However, market participants remain cautious about potential supply disruptions as Iran-backed Houthis in Yemen claimed responsibility for attacks on Saudi Arabian facilities along the Red Sea.

Reports suggest that the US halted strikes amid growing concerns over depleting interceptor supplies and a shortage of remaining targets within Iran. Additionally, General Dan Caine, Chairman of the Joint Chiefs of Staff, reportedly cautioned President Trump on Friday that continuing the campaign would severely strain critical munitions reserves.

On the policy front, the Fed is widely expected to hold interest rates steady on Wednesday before resuming rate hikes in September, though a minority of market participants still anticipate a surprise move at this week's meeting.

The downside of the USD/CAD pair is restrained as the commodity-linked Canadian Dollar (CAD) could struggle on lower oil prices. West Texas Intermediate (WTI) oil price opened at a bearish gap, down by over 5%, trading around $84.50 per barrel at the time of writing.