Canadian Dollar sits near two-month top vs USD amid bullish oil prices

The USD/CAD pair is seen consolidating its recent losses to a two-month low, touched last week, and trading below mid-1.3900s during the Asian session on Tuesday. Traders now seem hesitant to place aggressive directional bets amid a mixed fundamental backdrop and ahead of the crucial US inflation figures.

The US-Iran standoff dampens hopes for a swift reopening of the Strait of Hormuz, which, along with restricted shipping traffic through the Bab el-Mandeb Strait, continues to fuel supply concerns and supports crude oil prices. Moreover, Friday's upbeat Canadian employment details seem to underpin the commodity-linked Loonie and act as a headwind for the USD/CAD pair, though a modest US Dollar (USD) strength helps limit the downside.

Investors remain worried about inflation risks stemming from volatile oil prices, which might force the US Federal Reserve (Fed) to adopt a more hawkish stance. In fact, traders are still pricing in a greater possibility that the US central bank will hike interest rates at least once by the end of this year. This, along with geopolitical uncertainties, assists the safe-haven buck in preserving the previous day's modest gains and acts as a tailwind for the USD/CAD pair.

Traders, however, opt to wait for more cues about the Fed's future policy path before positioning for the next leg of a directional move. Hence, the focus will remain glued to the US Consumer Price Index (CPI) and the Producer Price Index (PPI), due for release on Wednesday and Thursday, respectively. The crucial data, along with further developments surrounding the Middle East crisis, should provide a fresh impetus to the USD and the USD/CAD pair.

USD/CAD daily chart

Technical Analysis

The USD/CAD pair trades just above the 100-day Simple Moving Average (SMA) at 1.3918, with a break below this level likely to expose the recent closing area around 1.3900. On the flip side, spot prices would need to clear recent swing highs to extend the advance, while the close proximity of price to the 100-day SMA hints at a consolidation phase rather than an aggressive trend move.