Loonie Boosted by Oil Price Surge, but Hawkish Fed Outlook Caps Gains

The Canadian dollar strengthened on Monday as oil prices surged due to renewed US-Iran military tensions around the Strait of Hormuz, and a softer US dollar.

Brent crude rose above $90 a barrel, climbing more than 3%, which typically benefits Canada's currency due to its large energy-exporting sector.

However, the loonie's gains were limited as markets increased bets that the Federal Reserve could raise interest rates in September. Fed Chair Kevin Warsh has argued that further tightening may be needed if inflation fails to move toward the central bank's 2% target, supporting US Treasury yields and the dollar.