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01/06/26
8
USD/CAD Rises as Dollar Demand Improves
USD/CAD extended gains for a second straight session on Monday as demand for the US dollar improved. The pair moved back above 1.3800 in Asian trading, although buying interest remained restrained and prices stayed below last week’s peak near 1.3870, the highest level since mid-April.
The greenback continues to draw support from renewed geopolitical uncertainty and expectations that the Federal Reserve could keep interest rates elevated for longer. Ongoing tensions around US-Iran negotiations, combined with Israel’s military action in Lebanon, have kept risk sentiment fragile and encouraged flows into the dollar’s safe-haven appeal. Progress toward an agreement remains difficult, with disagreements over Iran’s nuclear program and access to the Strait of Hormuz still unresolved.
Additional support for the dollar came from signs that Washington has adopted a tougher stance in talks with Tehran. At the same time, markets continue to price in the possibility of a Fed rate hike before year-end, helping the currency recover after last week’s pullback from a two-week low. In contrast, the Canadian dollar has faced pressure from weak domestic data after Canada’s economy contracted at an annualized pace of 0.1% in the first quarter of 2026.
That said, rebounding crude oil prices have offered some support to the loonie. Oil recovered from a more than one-month low reached on Friday, limiting the downside for the commodity-linked currency and preventing a sharper rise in USD/CAD. The recent recovery in energy prices suggests that further gains in the pair may be harder to sustain without stronger follow-through buying.
For now, the balance of forces leaves the pair trading with a mild bullish tone, but not yet in a position to confirm a renewed advance toward recent highs.
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