US Dollar Struggles as Canadian Dollar Rises with Crude Oil Prices

The US Dollar (USD) is struggling despite growing expectations of a Federal Reserve rate hike in September. The USD/CAD pair depreciates as the Canadian Dollar strengthens on the back of rising crude oil prices.

West Texas Intermediate crude is hovering near three-month highs around $90.50 per barrel, driven by escalating conflict in the Middle East. Crude prices surged nearly 10% last week following increased military activity around the Strait of Hormuz and a recent attack on Saudi Aramco's Jazan facilities.

Analysts at HSBC caution that, despite the recent improvement in sentiment around the Fed's anti-inflation stance, broader structural issues have not disappeared. They highlight ongoing worries over US fiscal sustainability, noting that they 'remain cautious about broader structural concerns, especially around US fiscal sustainability, which could still return and weigh on the Dollar yet again.'

The Bank of Canada has a significant influence on the Canadian Dollar by setting interest rates, with relatively higher interest rates tending to be positive for the CAD. The price of Oil is also a key factor impacting the value of the Canadian Dollar, as petroleum is Canada's biggest export.