CAD Under Pressure as Oil Prices Plummet Amid US-Iran Diplomacy

The Canadian Dollar (CAD) is under pressure due to declining crude oil prices and diplomatic efforts between the US and Iran. West Texas Intermediate (WTI), the benchmark US crude oil, reached a two-week low on Tuesday as hopes for a peaceful resolution to the conflict increased. This has reduced concerns about supply disruptions in the Middle East.

Iran offered to unblock the Strait of Hormuz in exchange for a reduction in US military presence, further easing supply worries. The decline in oil prices also alleviates fears of inflation and keeps US bond yields depressed, which could temper enthusiasm for the US Dollar (USD) and its pair with the CAD.

However, the USD Index (DXY), which tracks the Greenback against a basket of currencies, remains near its highest level since July 30 due to the Federal Reserve's (Fed) hawkish stance. The central bank increased interest rates for the first time in three years and signaled another hike this year, indicating that the path of least resistance is still upward for the USD and USD/CAD pair.