The USD/CAD pair has declined to approximately 1.3620 during the early Asian session on Tuesday. The UAE has reported incoming missile and drone strikes originating from Iran. Fed’s Kashkari indicated that additional rate hikes remain a possibility. The USD/CAD pair declines to approximately 1.3620 in the early Asian trading session on Tuesday. Rising tensions in the Middle East, following reports from the United Arab Emirates regarding missile and drone threats from Iran, support the commodity-linked Canadian Dollar.
On Monday, it was reported that Iran launched a series of missile and drone attacks against the UAE following a significant operation by the US aimed at gaining control of the Strait of Hormuz. Iran’s Foreign Minister Abbas Araghchi stated that the present circumstances in the vital waterway indicate that “there’s no military solution to a political crisis.” The blockade of the Strait of Hormuz by Iran has persisted for weeks, resulting in an unprecedented disruption to oil supply and a significant increase in crude oil prices. Canada stands out as a significant player in the oil export market, and typically, an increase in crude oil prices tends to bolster the value of the Canadian Dollar.
Conversely, hawkish remarks from officials at the US Federal Reserve may serve to constrain the declines of the Greenback. Minneapolis Fed President Neel Kashkari indicated on Sunday that additional rate hikes are still a possibility, especially given the persistent inflation risks associated with increasing energy prices tied to the Iran conflict. The US April ISM Services Purchasing Managers Index report is set to be released later on Tuesday. Should the outcome exceed expectations, it may offer some backing to the USD relative to the CAD.