Canadian Dollar gains ground as Middle East tensions boost oil prices

The USD/CAD pair declines to around 1.3770 during the early European session on Wednesday. Reports of a US strike on Iranian tankers and attacks on Saudi infrastructure boost crude oil prices and lift the commodity-linked Canadian Dollar (CAD). Traders will closely monitor the key US inflation reports later this week for more clues about the US interest rate path. 

CNBC reported on Tuesday that the US struck multiple Iranian oil tankers that officials say are linked to Iran’s Islamic Revolutionary Guard Corps (IRGC). The strikes were a response to attempted missile attacks on a US warship. 

Additionally, Iran-backed Houthi militants said they again targeted Saudi Arabia’s 400,000 barrel-a-day Jazan refinery and facilities that serve the domestic market.

It is worth noting that Canada is a major oil-exporting country, and high crude oil prices generally have a positive impact on the Loonie. 

The US Producer Price Index (PPI) and Consumer Price Index (CPI) inflation data will be the highlights later this week. These reports could offer some hints about the US interest rate path. Hotter-than-expected inflation readings could reinforce a Federal Reserve (Fed) interest rate hike at the September policy meeting, helping limit the Greenback’s losses. 

Geopolitical tensions keep oil and gold risk premium supporting the Canadian Dollar

Strategists at National Bank of Canada note that renewed geopolitical strains are reinforcing the recent support for the Canadian Dollar. They point out that “with tensions flaring up again in the Strait of Hormuz in August, market-implied odds of a return to normal by year-end have fallen below 30%, from more than 50% previously.” According to the bank, this shift “keeps a geopolitical risk premium embedded in both oil and gold, providing support for the Canadian dollar.”

Technical Analysis: USD/CAD maintains a negative outlook under the 100-day SMA

In the daily chart, USD/CAD extends a corrective pullback and holding below a dense band of moving-average and Bollinger resistance. The pair remains capped beneath the 20-day Bollinger middle band and the 100-day simple moving average, with the upper Bollinger band reinforcing the topside ceiling. The Relative Strength Index (14) around 38 stays in bearish territory, hinting that downside pressure persists despite the recent stabilization off intraday lows.

On the downside, initial support aligns with the lower Bollinger band near 1.3750; a clear break below this floor would expose deeper weakness toward prior swing areas not shown by the current indicators. On the topside, a recovery above the 20-day Bollinger midpoint at 1.3842 would be the first sign of easing pressure, while the 100-day SMA at 1.3925 and the upper band at 1.3935 form a tight resistance cluster that must be reclaimed to shift the near-term bias away from bearish.