Canadian Dollar Weakens Amid Safe-Haven Demand and Hawkish Fed Sentiment

The Canadian Dollar (CAD) is weakening as safe-haven demand supports the US Dollar. The USD/CAD pair has extended its gains for two consecutive days, trading around 1.4020 during Asian hours on Friday.

Tensions in the Strait of Hormuz have heightened uncertainty and cast doubt over efforts to fully reopen the shipping route. Market participants remain skeptical about the corridor's prospective opening, especially as Iran's parliament reviews a draft agreement that would bar US and Israeli vessels and impose penalties on hostile nations.

Rising US Treasury yields and rebounding oil prices have reignited concerns that the Federal Reserve could raise interest rates next month. Hawkish comments from FOMC members were reinforced by reports indicating that Fed Chair Warsh is prepared to hike rates if inflation accelerates further.

The FXS Fed Sentiment Index remains elevated at 138.69, signaling a risk of additional rate hikes rather than an imminent pivot toward easing. However, markets are currently pricing in a 54.5% chance of a 25-basis-point rate hike in September, down from 63.4% a week ago.