USD/CAD bettered offered while positively correlated to bid-oil on troubled ME supply outlook

The price of oil is elevated on speculation that there will be a disruption to world supply from the Middle East and further escalation of the tit-for-tat proxy war that just turned real between Iran and the US following the assassination of one of Iran's top generals. 

This, in turn, will likely to continue to support the loonie and underpin a move to the downside in funds as markets factor in the likelihood of the Federal Reserve moving back onto the defensive foot. This would all depend on there being an inflection in the US and global economy, following either a breakdown in the US and Sino trade negotiations or a war in the Middle East with the threat of rising inflation. 

"We caution against expectations for a sensational response from the Iranian regime, expecting instead that any response will be well measured as both sides seek to protect their core interests,"

– analysts at TD Securities argued. Which could mean oil prices will come back under pressure and subsequently weigh on the Loonie. 

However, a response from Iran will open up a likely devastating blow to risk appetite. The question is how correlated the CAD will be when oil goes through the roof considering how bid the US dollar will likely become as well, at least in the knee-jerk. "In short, if World War Three kicks off, go long USD as you head for the shelters; and if US muscle-flexing prevents World War Three here, it’s, even more, the time to remember why the USD is still the USD," analysts at Rabobank argued. 

USD/CAD levels

USD/CAD is below trend line support as well as the 200, 50 and 21-day moving averages. USD/CAD is now a 38.2% Fibonacci retracement of the late 2017 - YTD range and embarking on a 50% Fibonacci retracement, back to the 1.2860.