USD/CAD Recovers Amid US-Canada Tensions, Gold Rallies to Fresh High

The US dollar is recovering against the Canadian dollar (USD/CAD) as tensions between the two countries escalate. The US imposed 50% tariffs on Canadian exports worth around $20 billion, leading to a weakening of the Canadian dollar.

However, the outlook for oil could limit the upside in USD/CAD. Rising crude prices are being supported by tensions in the Middle East and Iran's dismissal of further US sanctions. Canada is a major oil exporter, so higher crude prices can provide support for the loonie and offset some of the pressure from the trade dispute.

This week could provide a fresh catalyst for USD/CAD with US core PCE inflation due on Wednesday followed by Federal Reserve Chair Kevin Warsh speaking at Jackson Hole on Friday. A hotter PCE reading or hawkish comments from Warsh could lift the dollar and push USD/CAD higher, while a softer inflation reading combined with elevated oil prices could favour the Canadian dollar.

Gold is extending its rally to a fresh three-month high as the US Treasury's intervention in the bond market weighs on the dollar. The move has pushed Treasury yields lower, taking some support away from the dollar and creating a more favourable backdrop for gold.