Middle East Energy Shock Pushes Oil Prices Higher, Combined with Bank of Canada's Cautious Stance, USD/CAD Pulls Back to Around 1.3720

Huitong Finance APP News — Amid ongoing escalation in the Middle East situation, global energy markets are experiencing increased volatility, driving a rebound in crude oil prices and directly impacting the foreign exchange market. After rising in the previous trading session, the USD/CAD pair retreated, with the exchange rate trading around 1.3720 during Asian hours. The primary driver of this correction is the support from rising oil prices for the Canadian dollar, leading to a temporary rebound of this typical commodity currency.

The further escalation of geopolitical risks has become a key catalyst for rising oil prices. Consecutive attacks on major energy facilities have quickly heightened concerns over disruptions in global oil and gas supplies. As a major global energy exporter, Canada’s economy is highly correlated with oil price movements; rising oil prices typically improve its trade conditions and boost the Canadian dollar. In the current environment of increasing supply uncertainty, rising energy prices are clearly favorable for the CAD.

Meanwhile, the Bank of Canada maintained its benchmark interest rate at 2.25%, in line with market expectations. However, the policy statement conveyed a more cautious tone, noting that economic growth momentum is weaker than previously forecast, and inflation faces upside risks. The central bank emphasized that recent economic activity has underperformed expectations, with growth prospects facing downside pressures, and that rising energy prices could temporarily push inflation higher. This combination of “slowing growth + rising inflation” complicates the policy outlook.

At the press conference, the Bank of Canada governor explicitly stated that the impact of the Middle East situation on the economy will depend on the duration of the conflict, and emphasized that future policy will continue to be assessed on a “meeting-by-meeting basis.” This indicates that, amid high uncertainty, the Bank of Canada prefers to remain flexible rather than lock in a policy path prematurely.

On the other hand, the Federal Reserve also kept interest rates in the 3.50%-3.75% range and signaled a hawkish stance. The Fed noted that, although inflation is expected to gradually decline, the process may be slower than previously anticipated, and rising oil prices could temporarily elevate inflation. This statement reinforces the fundamental support for the US dollar, limiting the downside potential of USD/CAD.

Therefore, the current exchange rate trend exhibits a clear tug-of-war: on one side, rising oil prices support the CAD; on the other, the Fed’s hawkish policy stance supports the USD, making a one-sided trend unlikely. The market is reassessing the interplay between the two countries’ policy paths and energy market changes.

From a technical perspective, the USD/CAD daily chart shows that after a prior rally, the pair has entered a correction phase, with short-term upward momentum weakening. Resistance is seen around 1.3800, while support is at approximately 1.3650. A break below could lead to further testing of the 1.3600 level. Overall momentum indicators suggest that bullish strength is waning. On the 4-hour chart, the pair shows a high-level pullback, with short-term moving averages flattening and weakening signs, indicating a market entering consolidation. Currently, the price fluctuates around 1.3700; if oil prices continue to rise, the pair may test support levels further down. Conversely, if the USD regains strength, a retest of 1.3800 cannot be ruled out.

Overall, the USD/CAD trend is driven by both energy market dynamics and monetary policy. In the short term, oil price fluctuations will be the dominant factor, while the medium- to long-term trend will depend on the economic fundamentals and policy developments of both countries.

Summary: USD/CAD is currently in a typical multi-factor tug-of-war. Rising oil prices support the CAD, but the Fed’s hawkish stance limits downside potential. Meanwhile, slowing Canadian economic growth coupled with inflation pressures adds uncertainty to policy outlooks. The future trend will heavily depend on developments in the Middle East and energy prices, with the pair likely to remain range-bound in the near term.