- The USD/CAD continues its decline as higher oil prices persist amid increasing geopolitical tensions.
- WTI crude oil prices are climbing due to growing concerns over a wider Middle Eastern conflict and the possible closure of Libyan oil fields.
- The US Dollar is weakening due to heightened expectations of a Federal Reserve rate cut in September.
The USD/CAD continues to weaken for the third consecutive session, trading around 1.3480 during early European hours on Tuesday. This decline in the USD/CAD pair is largely due to the strengthening Canadian Dollar (CAD), which is linked to rising crude oil prices.
Crude oil prices have surged amid concerns about potential supply disruptions, driven by fears of an escalating conflict in the Middle East and the possible shutdown of Libyan oil fields. Additionally, Hamas has rejected Israel's new conditions in ongoing ceasefire negotiations in Egypt, demanding that Israel adhere to terms proposed by US President Joe Biden and the UN Security Council.
However, US Air Force General C.Q. Brown, chairman of the Joint Chiefs of Staff, reported to Reuters early Tuesday that fears of an imminent broader conflict in the region have lessened. The exchange of fire between Israel and Lebanon's Hezbollah has not escalated.
Oil prices have also been supported by rising expectations of US interest rate cuts, which could boost fuel demand. Lower borrowing costs are expected to stimulate economic activity in the United States, the world's largest oil consumer.
US Federal Reserve Chairman Jerome Powell stated at the Jackson Hole Symposium on Friday that "The time has come for policy to adjust." However, Powell did not specify the timing or extent of potential rate cuts. According to the CME FedWatch Tool, markets are anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting.
