USD/CAD Bounces on Risk Aversion, Middle East Tensions

The USD/CAD pair rebounded on Tuesday after hitting an intraday low of 1.3760, trading around 1.3790 at the time of writing and down 0.18% on the day.

The Canadian Dollar retains part of its gains against the US Dollar, but risk aversion stemming from escalating tensions in the Middle East limits the Loonie's advance despite higher Oil prices.

Middle Eastern tensions are increasing investor caution and supporting demand for safe-haven assets, providing some support to the US Dollar. The conflict between the United States and Iran has now lasted six months, with Iranian authorities threatening on Monday to target energy infrastructure across the Gulf, including US Oil and Gas interests, in the event of further attacks against Iran.

The prolonged conflict is also supporting Oil prices, which provide support to the Canadian Dollar as Crude Oil is one of Canada's main exports. Higher Oil prices help limit the upside in USD/CAD, but investors remain cautious ahead of the US Consumer Price Index (CPI) release on Friday, which could provide fresh clues about the Federal Reserve's monetary policy outlook and determine the US Dollar's next directional move.