Loonie Strengthens as Oil Prices Surge Amid US-Iran Tensions

The Canadian Dollar continues its upward momentum as oil prices climb and bets for a US Federal Reserve interest rate hike fade. The USD/CAD pair has extended its decline from the top end of the weekly range, reaching a fresh low since June 10. The downward trajectory is driven by a negative fundamental backdrop, including a soft Producer Price Index report and cooling inflation signs in the US Consumer Price Index.

The supply concerns stemming from the US-Iran standoff over the Strait of Hormuz have lifted crude oil prices, underpinning the commodity-linked Loonie and exerting additional downward pressure on the USD/CAD pair. Treasury Secretary Scott Bessent stated that the US will apply measures to Iran, including a continuous blockade of Iranian ports.

The focus now shifts to the US economic docket, featuring the release of monthly Retail Sales data and the Preliminary University of Michigan Consumer Sentiment Index. Influential FOMC members' comments will also drive the USD. Meanwhile, developments surrounding the Middle East crisis and oil price dynamics should provide some impetus to the USD/CAD pair.

The technical analysis suggests that the USD/CAD pair turns bearish beneath the 100-day Simple Moving Average (SMA) and the 50.0% Fibonacci retracement of the May-June upswing. This backs the case for further losses to the 61.8% Fibo. retracement at 1.3814, ahead of the 78.6% level at 1.3695 and the structural floor near 1.3544.