Oil Price Slump Weighs on Canadian Dollar Amid US-Iran Deal Hopes

The Canadian Dollar has weakened as oil prices slid on hopes of a US-Iran deal. The Loonie, which is sensitive to oil price movements due to Canada's major oil exports, fell in value.

US Treasury Secretary Scott Bessent told CNBC that the US is 'in talks with the Iranians' and there is a chance of a deal being reached today or tomorrow. This led to a slight weakening of the US Dollar, but the decline in oil prices outweighed this move and left the Canadian Dollar under pressure.

West Texas Intermediate (WTI) crude oil price fell nearly 4% on Tuesday to $75.50, its lowest level since July 13. Lower oil prices also ease energy-driven inflation pressures, reducing the need for central banks to maintain restrictive monetary policy or consider raising interest rates.

The Federal Reserve's expectations of a September rate hike have weakened, with the CME FedWatch Tool showing the probability falling to 58.9% from 67.2% a day earlier. Chicago Fed President Anna Paulson said that 'we need a mildly restrictive monetary policy' and that 'inflation is too high; we want to bring it down.'

Similarly, lower oil prices could also take pressure off the Bank of Canada (BoC), which previously warned that persistently high energy costs could require consecutive rate hikes.