Canadian Dollar trims gains as risk aversion supports US Dollar despite higher Oil prices

USD/CAD rebounds on Tuesday after hitting an intraday low of 1.3760 and trades around 1.3790 at the time of writing, down 0.18% on the day. The Canadian Dollar (CAD) retains part of its gains against the US Dollar (USD), but risk aversion stemming from escalating tensions in the Middle East limits the Loonie’s advance despite higher Oil prices.

Market sentiment remains fragile on Tuesday as prospects for a negotiated resolution to the Middle East conflict fade. Iranian authorities threatened on Monday to target energy infrastructure across the Gulf, including US Oil and Gas interests, in the event of further attacks against Iran.

Meanwhile, Qatari authorities are calling for efforts to reopen the Strait of Hormuz, a strategic route for global energy exports, to avoid what they describe as an “industrial catastrophe.” These tensions are increasing investor caution and supporting demand for safe-haven assets, providing some support to the US Dollar.

The prolonged conflict between the United States (US) and Iran, which has now lasted six months, is also supporting Oil prices. Higher Oil prices provide support to the Canadian Dollar, as Crude Oil is one of Canada’s main exports, helping to limit the upside in USD/CAD.

Foreign Exchange markets remain relatively subdued, however, as investors await the release of the US Consumer Price Index (CPI) on Friday. The inflation figures could provide fresh clues about the Federal Reserve’s (Fed) monetary policy outlook and determine the US Dollar’s next directional move.

USD/CAD technical analysis

In the one-hour chart, USD/CAD trades at 1.3790, keeping a bearish near-term tone as it holds beneath the downward trendline resistance at 1.3805 and the cluster of moving averages overhead. The 100-period simple moving average (SMA) at 1.3816 and the 200-period SMA at 1.3848 both sit above spot, suggesting rallies remain capped for now, while the Relative Strength Index (RSI) around 42 points to subdued upside momentum consistent with a corrective pullback rather than a sustained recovery.

On the topside, initial resistance is defined by the downtrend line at 1.3805, followed by a horizontal barrier at 1.3815 and the 100-period SMA near 1.3816, with the 200-period SMA around 1.3848 acting as a stronger cap if buyers push higher. On the downside, the first notable support comes at the horizontal level of 1.3760, where a break would expose further weakness and reinforce the prevailing bearish bias on this timeframe.

(The technical analysis of this story was written with the help of an AI tool. Know more.)