On Thursday (August 6), the US dollar rebounded slightly against the Canadian dollar during the European session, currently trading above the 1.4000 level. A rebound in oil prices provided support for the Canadian dollar, while the simultaneous fading of expectations regarding US-Iran negotiations and a Fed rate hike continued to weigh on the US dollar. These mixed factors caused the exchange rate to fluctuate around the 1.4000 level. Ahead of Friday's release of US and Canadian employment data, the market lacked the willingness to make large-scale bets.

The rebound in oil prices provided support for the Canadian dollar.

Crude oil prices rebounded slightly from a more than three-week low hit on Wednesday, mainly driven by geopolitical supply concerns. Houthi rebels in Yemen launched a missile attack on a Saudi oil tanker in the Red Sea, raising concerns about supply disruptions through this key shipping route. The Canadian dollar, a commodity currency, is highly positively correlated with oil prices, and the stabilization and rebound in oil prices directly provided a floor for the Canadian dollar. Furthermore, reports that Iran and Oman are close to finalizing a framework agreement for commercial shipping in the Strait of Hormuz alleviated some worst-case scenario concerns, but did not completely eliminate Middle East supply risks—the Houthi attack reminded the market that geopolitical risks have not disappeared as negotiations progress.

Dollar under pressure as expectations of a Fed rate hike fade.

Regarding the US dollar, market expectations for further interest rate hikes by the Federal Reserve are continuing to fade. Positive signals from the US-Iran negotiations pushed oil prices lower, easing inflation concerns and thus weakening interest rate support for further dollar strength. San Francisco Fed President Daly stated on Wednesday that the impact of tariffs on inflation has begun to subside, and that easing tensions in the Middle East will help reduce inflation—this dovish statement further reinforced market expectations that the Fed will maintain a wait-and-see approach. Meanwhile, the optimistic prospects of the US-Iran negotiations are also eroding safe-haven buying of the dollar. An Iranian Foreign Ministry spokesperson stated that Iran and Oman are close to finalizing a framework agreement for commercial shipping in the Strait of Hormuz, a development that strengthened market expectations for a diplomatic solution to end the five-month-long conflict.

Markets await US and Canadian employment data

Looking ahead, market focus has shifted to Friday's US non-farm payrolls report and Canadian employment data. US non-farm payrolls are expected to increase by 80,000 (previous figure 57,000), while Canadian employment data will provide clearer guidance for the monetary policy paths of both central banks. Weak US data will reinforce expectations of a wait-and-see approach from the Federal Reserve, further pressuring the dollar; strong data could trigger a dollar rebound. Regarding the Canadian dollar, the employment data will influence market expectations for the Bank of Canada's next policy move. Prior to this, geopolitical news will continue to dominate short-term fluctuations in the USD/CAD exchange rate. Progress in the Strait of Hormuz negotiations, Houthi attacks, and any new escalation of conflict could all act as catalysts for the exchange rate to break out of its current range.

Summarize

Ahead of Friday's US and Canadian employment data releases, the market lacks the willingness to make large-scale bets, and the exchange rate is expected to maintain a weak and volatile pattern in the short term. 1.4000 is a key psychological support level; a decisive break below this level could open up further downside potential. The 1.4050-1.4070 area constitutes short-term resistance. The actual progress of the Strait of Hormuz negotiations and the US and Canadian employment data will be key variables in disrupting the current balance. (USD/CAD daily chart, source: EasyForex) At 15:38 Beijing time on August 6, the USD/CAD exchange rate was 1.4012/13.