The USD/CAD pair continued its narrow trading range in Asian trading on Tuesday, hovering around 1.3800 . While the market lacks a clear short-term direction, the USD/CAD pair remains near its highest level in nearly a month and a half, indicating that the US dollar remains relatively strong. The core factors driving recent exchange rate volatility remain the changing situation in the Middle East and the global market's repricing of the Federal Reserve's policy path. Previously, negotiations between the US and Iran regarding a ceasefire agreement and the reopening of the Strait of Hormuz briefly boosted market risk appetite, but due to significant differences between the two sides on nuclear issues and security arrangements in the Strait, the market remains cautious about the final implementation of an agreement.

The US military launched a "self-defense" strike on southern Iran on Monday, targeting missile launch sites. Although the US emphasized it would exercise restraint during the ceasefire, the action reignited market concerns about an escalation of tensions in the Middle East. Against this backdrop of renewed geopolitical risks, the US dollar regained support from safe-haven buying. The dollar index had previously fallen to a more than one-week low, but as market risk sentiment deteriorated, funds flowed back into dollar assets, pushing the dollar/Canadian dollar pair to remain strong.

Furthermore, expectations that the Federal Reserve will maintain a hawkish stance continue to support the dollar. Recent US inflation data has remained generally strong, while the job market and consumer spending data have shown resilience, further cooling market expectations for a near-term Fed rate cut. Some investors have even begun to reconsider the possibility of further rate hikes. The high-interest-rate environment keeps dollar-denominated assets yields attractive, drawing continued global capital inflows into the US market. Against this backdrop, the dollar's overall performance remains strong.

However, the Canadian dollar is not entirely without support. As Canada is one of the world's major energy exporters, international oil prices have a significant impact on the Canadian dollar's exchange rate. Recently, international crude oil prices have rebounded due to supply risks in the Middle East, providing some support for the commodity currency, the Canadian dollar.

The market believes that as long as WTI crude oil can remain around $90 , Canadian export revenue and the performance of the energy sector are likely to continue to improve, thereby alleviating the pressure on the Canadian dollar to depreciate. This is also one of the important reasons why the USD/CAD exchange rate, although maintaining a high level, has consistently failed to break through to higher levels.

This week, the market will also focus on the US consumer confidence index, US PCE inflation data, and the revised US GDP figure. In particular, the US Personal Consumption Expenditures Price Index (PCE), as one of the Federal Reserve's most closely watched inflation indicators, will directly influence market expectations regarding future interest rate policy. If the PCE data shows that US inflation remains stubbornly high, the market may further strengthen its expectation that the Federal Reserve will maintain high interest rates for a long period, thereby pushing the dollar higher. Conversely, if the inflation data shows a significant cooling, the dollar may face short-term downward pressure.

Meanwhile, developments in the Middle East remain a key variable influencing market sentiment. If a substantial breakthrough is achieved in the ceasefire agreement between the US and Iran, international oil prices may decline, weakening support for the Canadian dollar; however, if the conflict escalates again, oil prices could rise further, reviving commodity currencies.

From the daily chart, the USD/CAD pair has rebounded from a low near 1.3570 and is currently stabilizing above 1.3800 . On the daily chart, the 20-day moving average is turning upwards, and the MACD indicator has returned above the zero line, indicating that bullish forces still dominate in the short term. However, the pair is currently testing the 200-day moving average resistance area. A decisive break above the 1.3835-1.3850 range could open up further upside potential, with a chance to test 1.3900 or even higher. Key support levels are located around 1.3750 and 1.3680 .

Overall, the current USD/CAD exchange rate is mainly influenced by three factors: "demand for the US dollar as a safe haven," "expectations of high interest rates from the Federal Reserve," and "the rebound in international oil prices." Market volatility may further intensify in the future.

Editor's Summary : The USD/CAD pair has recently maintained a high level of fluctuation, reflecting the market's search for a balance between a strong US dollar and oil price support for the Canadian dollar. Uncertainty surrounding the Middle East continues to drive demand for the US dollar as a safe haven, while the Federal Reserve's long-term expectation of high interest rates strengthens the attractiveness of dollar assets. However, the rebound in international oil prices has significantly improved the outlook for Canadian energy exports, providing important support for the Canadian dollar. Therefore, whether the USD/CAD pair can break through further will depend on US inflation data, changes in the Middle East situation, and international oil price trends. If oil prices continue to rise, the Canadian dollar may regain its advantage; however, if demand for the US dollar as a safe haven continues to intensify, the USD/CAD pair still has room for further upward movement.