USD/CAD Pair Extends Decline Amid Fading Rate Hike Bets and Ongoing Middle East Tensions

The USD/CAD pair extended its decline from Tuesday's high, reaching a fresh low since June 10. The downward trajectory has been driven by a negative fundamental backdrop, including fading bets for an immediate interest rate hike by the US Federal Reserve (Fed).

A soft Producer Price Index (PPI) report on Thursday and signs of cooling inflation from the Consumer Price Index (CPI) have bolstered bets that the Fed will hold interest rates steady. This has kept the US Dollar (USD) depressed below a two-week high.

Oil prices, however, have been lifted by supply concerns stemming from the US-Iran standoff over the Strait of Hormuz and the risk of a broader conflict in the Middle East. Treasury Secretary Scott Bessent said on Thursday that the US will apply measures against Iran, including the continuous blockade of Iranian ports.

The ongoing tensions have underpinned crude oil prices, which are now supporting the commodity-linked Canadian Dollar (CAD). This has exerted additional downward pressure on the USD/CAD pair. While traders are still pricing in a greater chance of at least one Fed rate hike by the year-end, the downside for the USD seems limited.