- The USD/CAD outlook is positive amid dollar’s safe-haven demand.
- Escalating Iran-Israel conflict and rising oil prices support the pair.
- Diverging economic outlook limits the gains.
The USD/CAD outlook gains traction on Monday, posting fifth consecutive winning streak on Monday. The pair moved above the mid-1.3700 area on Monday ahead of European session. The price opened with a significant gap up, following escalated tension in the Middle East that boosted demand for the safe-haven US dollar.
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The surge came after a dramatic turn in the Israel-Iran conflict. The US entered the fray with military action over the weekend. President Trump confirmed the news via Truth Social that the US forces had successfully hit three nuclear facilities of Iran, aimed at curtailing Tehran’s efforts to develop nuclear weapons. The Dollar Index rallied above 99.00, revealing a strong demand for the greenback amid geopolitical uncertainty.
Iran retaliated by threatening to choke the Hormuz Strait which is a strategic waterway. Around 25% oil exports pass through this route. In return, the crude oil soared to a fresh five-month top, lending some support to the Canadian dollar, being a largest oil exporter to the US.
Despite the solid bullish tone, the USD/CAD lacks conviction due to diverging economic drivers. Although the safe-haven appeal of dollar supports the pair, the Fed’s resumption of easing policy as soon as September, has tempered the bullish enthusiasm. On the other hand, Canadian dollar finds strength from a stable monetary policy, with diminishing odds of further rate cuts by the Bank of Canada due to persistent inflation.
Market participants are now eying the key economic data. Flash global PMIs and oil price dynamics remain pivot for the Loonie’s direction. Moreover, Canada’s inflation data and Fed Chair Powell’s testimony are also important events this week.
USD/CAD Technical Outlook: Bullish Momentum Above 1.3728
The 4-hour chart shows a bullish scenario for the pair as it remains well above the 20-period SMA. However, the RSI shows overbought condition as the value hits 70.0. The price broke well above the 1.3728 resistance level.
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However, it may consolidate above the 1.3750 zone before finding any directional bias. For bulls, the next target is at the resistance level of 1.3860. On the flip side, falling below the 1.3728 level may drag towards the 1.3700 area ahead of 1.3650.
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