Canadian Dollar Softens as Geopolitical Risks Lift USD/CAD

Key Moments

USD/CAD Rebounds as Safe-Haven Demand Supports the Greenback

The USD/CAD pair advanced toward 1.4165 during Monday’s Asian session, reversing a four-day losing streak. The Canadian Dollar weakened against the U.S. Dollar as investors reacted to renewed geopolitical tensions linked to the U.S.-Iran conflict. Market participants are also positioning ahead of the U.S. June Consumer Price Index (CPI) release scheduled for Tuesday.

Geopolitical Escalation in the Middle East Drives Risk Sentiment

According to Bloomberg, the U.S. military conducted a series of strikes across Iran aimed at “degrading” Tehran’s capacity to interfere with commercial shipping in the Strait of Hormuz. Following these actions, the Islamic Revolutionary Guard Corps (IRGC) launched retaliatory drone and missile attacks targeting U.S. allies across the Middle East, including Kuwait, Jordan, Qatar, Bahrain, and Jordan.

Over the weekend, Iran announced that the Strait of Hormuz would be closed “until further notice.” The prospect of an extended disruption in this key shipping channel and the broader regional escalation has supported demand for safe-haven assets such as the U.S. Dollar against risk-sensitive currencies like the Canadian Dollar.

Canadian Labor Market Data Offers Some Support to the Loonie

Stronger Canadian employment figures have limited downside pressure on the CAD. Statistics Canada reported on Friday that the domestic economy added 18.2K jobs in June, extending the positive momentum from the prior month. This followed an increase of 87.8K jobs in May and exceeded the market consensus of 10K.

The Unemployment Rate declined to 6.5% in June from 6.6% in May, coming in better than expectations for a 6.6% reading. The data suggests resilience in Canada’s labor market, which may help cushion the currency against external headwinds stemming from geopolitical risk and U.S. Dollar strength.