Oil Price Surge Lifts CAD, But USD Expectations Remain High
Oil prices have surged to nearly four-month highs after Saudi Arabia's east-west oil pipeline was suspended following a drone attack, boosting the Canadian dollar and limiting the decline of USD/CAD.
The suspension has heightened supply risks in the Middle East, with transportation risks remaining elevated across multiple critical energy-transport routes. WTI crude has risen above $102, while Brent crude has broken through $107.
Rising oil prices typically support the Canadian dollar as a currency heavily reliant on energy exports. The stable yield-spread environment between Canada and the United States may offer the CAD a degree of anchoring in the near term, putting downward pressure on the USD/CAD pair.
However, U.S. inflation dynamics and expectations of Federal Reserve rate hikes are capping downside for the USD. Market analysts believe that the probability of a 25-basis-point rate hike at the Fed's September meeting has risen sharply to around 87%, from roughly 59% a week earlier.