USD/CAD continues its decline from 1.3713, approaching six-week lows at 1.3635. There is a sense of moderate optimism regarding the negotiations between the US and Iran, which is contributing to a defensive stance for the US Dollar. On Wednesday, the Bank of Canada and the Federal Reserve will announce their monetary policy decisions. The US Dollar is exhibiting the weakest performance among the G8 majors on Monday, continuing its depreciation against the Canadian Dollar for the second consecutive day. The pair is currently trading at 1.3630, approaching new six-week lows following a swift reaction at 1.3713 on Friday. A tempered sense of optimism regarding a negotiated resolution to the Middle East conflict is placing the safe-haven US Dollar under pressure on Monday.
The cancellation of the second round of US-Iran peace talks has occurred; however, a report indicating that Tehran has submitted a new peace proposal to the US is sustaining a slight risk appetite as the week begins. According to report Iran has proposed to the US the potential for resolving the conflict and reopening the Strait of Hormuz, while deferring nuclear negotiations to a subsequent phase. The crucial waterway, responsible for the transport of approximately 20% of global oil production, has been closed for nearly two months, maintaining crude prices around the significant $100-per-barrel mark. The barrel of the US benchmark West Texas Intermediate 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.
This week, the focus will shift to central banks. The Bank of Canada is anticipated to maintain its monetary policy steady for the fourth consecutive meeting on Wednesday. The Bank of Canada is expected to acknowledge the increasing inflationary pressures while seeking additional time to evaluate its monetary policy in light of the ongoing uncertainty in the Middle East. The US Federal Reserve is expected to take similar action shortly thereafter. The market is fully pricing interest rates to remain on hold throughout 2026, according to the CME Fed Watch Tool, which also indicates that there is a 66% probability that the central bank will maintain its monetary policy in December this year.
Wednesday’s Fed meeting is expected to be the final one for Jerome Powell in his role as chairman, with his term concluding in May. Former Governor Kevin Warsh has been designated as his successor. The uncertainty lies in whether Powell will retain his position at the Board of Governors or ultimately depart from the bank, as requested by US President Donald Trump. The implications of the Powell-Trump narrative and the autonomy of the Federal Reserve are expected to continue to be a focal point in the days following the meeting.